Secured Creditor Can't Challenge Resolution Plan Insisting That Higher Amount Should Be Paid Based On Security Interest : Supreme Court

The Supreme Court has held that a dissenting secured creditor cannot challenge a resolution plan approved under the Insolvency and Bankruptcy Code(IBC) with an argument that higher amount should have been paid to it on the basis of the security interest held by it over the corporate debtor.

A division bench comprising Justices Vineet Saran and Dinesh Maheshwari observed that it is against the scheme of IBC to hold that a secured creditor is entitled to the amount in reference to its security interest.

"It has not been the intent of the legislature that a security interest available to a dissenting financial creditor over the assets of the corporate debtor gives him some right over and above other financial creditors so as to enforce the entire of the security interest and thereby bring about an inequitable scenario, by receiving excess amount, beyond the receivable liquidation value proposed for the same class of creditors", the Court observed in the case India Resurgence ARC Pvt Ltd VS Amit Metaliks Ltd& Anr.

The Court added :

"..what amount is to be paid to different classes or sub-classes of creditors in accordance with provisions of the Code and the related Regulations, is essentially the commercial wisdom of the Committee of Creditors; and a dissenting secured creditor like the appellant cannot suggest a higher amount to be paid to it with reference to the value of the security interest"

The appellant was challenging the resolution plan approved for the insolvency of corporate debtor VSP Udyog Private Limited. The appellant's main grievance was that against its admitted claim of Rupees 13.38 crores over the corporate debtor, the resolution applicant had offered a "meagre amount" of about Rupees 2.026 crores without considering the valuation of the security held by the appellant, which admittedly had the valuation of more than INR 12 crores.

The appellant approached the Supreme Court after the National Company Law Tribunal(NCLT), Kolkata bench and the National Company Law Appellate Tribunal turned down its challenge against the resolution plan.

Before the Supreme Court, the appellant argued that after the amendment to Section 30(4) of IBC, the Committee of Creditors was required to take into account the priority among the secured creditors.

In this regard, the Supreme Court observed that he amendment to sub-section (4) of Section 30 only amplified considerations for the Committee of Creditors while exercising its commercial wisdom so as to take an informed decision in regard to the viability and feasibility of resolution plan, with fairness of distribution amongst similarly situated creditors.

The Court further said that the business decision taken in exercise of the commercial wisdom of CoC does not call for interference unless creditors belonging to a class being similarly situated are denied fair and equitable treatment.

The top court said that it examined the resolution plan, to satisfy itself, although the NCLT and NCLAT have upheld it.

"What we find is that the proposal for payment to all the secured financial creditors (all of them ought to be carrying security interest with them) is equitable and the proposal for payment to the appellant is at par with the percentage of payment proposed for other secured financial creditors. No case of denial of fair and equitable treatment or disregard of priority is made out".

Every dissatisfaction of a creditor will not partake the character of a legal grievance, the court said.

"Once it is found that all the mandatory requirements have been duly complied with and taken care of, the process of judicial review cannot be stretched to carry out quantitative analysis qua a particular creditor or any stakeholder, who may carry his own dissatisfaction. In other words, in the scheme of IBC, every dissatisfaction does not partake the character of a legal grievance and cannot be taken up as a ground of appeal"

Accepting the propositions of the appellant would defeat the purposes of IBC :

"...if the propositions suggested on behalf of the appellant were to be accepted, the result would be that rather than insolvency resolution and maximisation of the value of assets of the corporate debtor, the processes would lead to more liquidations,with every secured financial creditor opting to stand on dissent. Such a result would be defeating the very purpose envisaged by the Code; and cannot be countenanced"

The Court referred to precedents such as Jaypee Kensington Boulevard Apartments Welfare Association vs. NBCC (India) Ltd and Committee of Creditors of Essar Steel India Limited v. Satish Kumar Gupta.

Case Details

Title :  India Resurgence ARC Pvt Ltd VS Amit Metaliks Ltd& Anr.

Bench : Justices Vineet Saran and Dinesh Maheshwari

Citation : LL 2021 SC 269

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