Can a Secured Creditor challenge Resolution Plan for higher amount based on Security Interest?
Case Study:- India Resurgence ARC Pvt Ltd VS Amit Metaliks Ltd& Anr.
Facts:-
- 30th Oct, 2002- Corporate Debtor “VSP Udyog Private Limited” is incorporated as private unlisted company.
- 7th August, 2019- CIRP is ordered against the company.
- 6th November, 2019- Mr. Raj Singhania was appointed as Insolvency RP, in replacement of the IRP.
- 20th March, 2020- RP placed three resolution plans for consideration in COC meeting.
- 29th May, 2020- NCLT order one of the Resolution Applicants, namely, M/s. Amit Metaliks Limited to submit their resolution plan even after the expiry of last date of submission.
- 29th June, 2020- COC meeting was held and M/s. Amit Metaliks Limited declared as H-1 bidder.
- 27th July, 2020- A revised resolution plan is submitted by M/s. Amit Metaliks Limited incorporating the changes/modifications suggested by the RP/COC and also revised the financial bids.
- 13th August, 2020- COC through e-voting approved the revised Resolution Plan with 95.35% voting shares.
- 20th October, 2020- NCLT approved the resolution plan.
‘India Resurgence ARC Pvt. Ltd’ the dissenting Secured Financial Creditor having a vote share of 3.94% filed a petition in NCLAT on ground that the approved Resolution Plan failed to deal with the interests of the all the stakeholders including the Appellant who was offered a meager amount of slightly over Rs.2 Crores as against its admitted claim of an amount exceeding Rs.13 Crores without even considering the valuation of the security held by the Appellant in its Resolution Plan which had a valuation of approximately Rs.12 Crores and mentioned the reference of amendments in section 30(4) of IBC.
02nd March, 2021- NCLAT dismissed the claims on ground that“amendment introduced in Section 30(4), be it seen that the amendment vests discretion in the Committee of Creditors to take into account the value of security interest of a Secured Creditor in approving of a Resolution Plan. It’s a guideline and not imperative in terms, which may be taken into account by the Committee of Creditors in arriving at a decision as regards approval or rejection of a Resolution Plan. Legislature brought in the amendment to amplify the scope of considerations which may be taken into consideration by the Committee. Such consideration is only aimed at arming the Committee of Creditors with more teeth so as to take an informed decision in regard to viability and feasibility of a Resolution Plan, fairness of distribution amongst similarly situated creditors being the bottom line.”
13th May, 2021- SC held, after being approached by the dissent secured creditor. "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. The repeated submissions with reference to the value of its security interest neither carry any meaning nor any substance. It is wholly inapt and is rather ill-conceived.
Amount is to be paid to different classes or subclasses of creditors in accordance with provisions of the Code and the related Regulations, is essentially the commercial wisdom of the CoC; 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.
In case a valid security interest is held by a dissenting financial creditor, the entitlement of such dissenting financial creditor to receive the amount could be satisfied by allowing him to enforce the security interest, to the extent of the value receivable by him and in the order of priority available to him. By enforcing such a security interest, a dissenting financial creditor would receive payment to the extent of his entitlement and that would satisfy the requirement of Section 30(2)(b) of the Code.
Court made a reference of Jaypee Kensington (supra), that a dissenting financial creditor would be receiving the payment of the amount as per his entitlement; and that entitlement could also be satisfied by allowing him to enforce the security interest, to the extent of the value receivable by him. It has never been laid down that if a dissenting financial creditor is having a security available with him, he would be entitled to enforce the entire of security interest or to receive the entire value of the security available with him.
Court made a reference of Essar Steel as Indeed, if an "equality for all" approach recognising the rights of different classes of creditors as part of an insolvency resolution process is adopted, secured financial creditors will, in many cases, be incentivized to vote for liquidation rather than
resolution, as they would have better rights if the corporate debtor was to be liquidated rather than a resolution plan being approved. This would defeat the entire objective of the Code which is to first ensure that resolution of distressed assets takes place and only if the same is not possible should liquidation follow.”
Conclusion:-A dissenting secured creditor cannot challenge a resolution plan approved under the 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 CD.
CS Rashmi Kumari
CA IP Jugraj Singh Bedi
