DBS BANK LIMITED SINGAPORE VERSUS RUCHI SOYA INDUSTRIES LIMITED AND ANOTHER
CIVIL APPEAL NO. 9133 OF 2019
Facts:
1.DBS Bank Limited Singapore had extended financial debt of around USD 50,000,000 (fifty million dollars only) to to M/s. Ruchi Soya Industries Limited to the corporate debtor and debt was secured by charge. On 15.12.2017, Corporate Insolvency Resolution Process3 was initiated against the Corporate Debtor under the provisions of the Code. The company petition seeking to initiate CIRP was admitted and a Resolution Professional was appointed
2.The appellant had submitted its claim, which was admitted by the RP at Rs. 242,96,00,000 (rupees two hundred forty two crore ninety six lakh only). On 20.03.2019, Patanjali Ayurvedic Limited submitted a resolution plan for Rs. 4134,00,00,000 (rupees four thousand one hundred thirty four crore only) against the aggregate claims of around Rs. 8398,00,00,000 (rupees eight thousand three hundred ninety eight crore only), representing approximately 49.22% of the total.
3.On 12.04.2019, by a communication, the appellant informed the Committee of Creditors that the sole and exclusive nature of security held by the appellant by way of mortgage/hypothecation over immovable and fixed assets of the Corporate Debtor was of greater value compared to collaterals held by other creditors admitted claims of the financial creditors.
4.In the 21st and 22nd CoC meetings held on 15.04.2019 and 23.04.2019 respectively, the appellant’s concern regarding treatment/proposed pay-out was noted. On 30.04.2019, the resolution plan was approved by 96.95% of the CoC. The appellant had voted against the resolution plan, thereby becoming a dissenting financial creditor. The resolution plan was filed for approval before the National Company Law Tribunal Mumbai. Separately, the appellant challenged the distribution mechanism of the resolution plan proceeds by way of an application before the NCLT, Mumbai.
5.On 24.07.2019, the NCLT granted provisional/conditional approval to the resolution plan. By the same order dated 24.07.2019, the NCLT dismissed the appellant’s application challenging the distribution mechanism of the resolution plan proceeds. During pendency of the appeal, Section 6 of the Insolvency and Bankruptcy Code (Amendment) Act, 2019, was notified by way of a gazette notification dated 16.08.2019.
6.On 30.08.2019, at the 26th CoC meeting, the appellant requested the CoC to reconsider the distribution of the resolution proceeds in light of the amendments to the Code. The appellant had submitted that if the amendments were considered, it would be entitled to receive Rs. 217,86,00,000 (rupees two hundred seventeen crore eighty six lakh only) which is the liquidation value of the security interest. The CoC, however, did not accept the prayer, observing inter alia that the appellant had already filed an appeal before the NCLAT, which was pending. The CoC was of the view that there was a fair amount of ambiguity in the amendments, and no view should be expressed by them.
7.On 11.10.2019, the appellant challenged the final approval order dated 04.09.2019 by way of an appeal before the NCLAT. The first NCLAT appeal preferred by the appellant on 31.07.2019 was still pending. Two appeals preferred by the appellant against the orders/judgments of the NCLT dated 24.07.2019 and dated 04.09.2019 were taken up for hearing by the NCLAT.
8.The orders dated 18.11.2019 and 09.12.2019 passed by the NCLAT are in challenge before us. This Court, vide order dated 06.12.2019, was pleased to issue notice in the appeal preferred against the order dated 18.11.2019 and by way of an interim order, has directed that Rs. 99,74,00,000. As per the appellant, the pro rata distribution of proceeds does not give regard to the sole, exclusive and higher value of their security interest. The appellant will receive approximately Rs. 119,00,00,000 (rupees one hundred nineteen crore only) as against the liquidation value of the security interest of Rs. 217,86,00,000 (rupees two hundred seventeen crore eighty six lakh only).
Issue: Whether Section 30(2)(b)(ii) of the Insolvency and Bankruptcy Code, 2016 as amended in 2019, entitles the dissenting financial creditor to be paid the minimum value of its security interest?
Decision: It held that Section 30(2)(b)(ii) of the Insolvency and Bankruptcy Code, 2016 as amended in 2019, entitles the dissenting financial creditor to be paid the minimum value of its security interest
Rationale:
1.It noted that the Amendment Act was certainly applicable when the appeals were heard and decided by the NCLAT on 18.11.2019 and 09.12.2019, which was post the enforcement of the Amendment Act.
2.It held that On the resolution plan being approved, an unwilling secured creditor does and must forgo the security, albeit such an unwilling secured creditor is entitled to the value of the security as payable on the liquidation of the corporate debtor. The provision is enacted to protect the minority autonomy of creditors. It should not be read down to nullify the minimum entitlement. Section 30(2)(b)(ii) forfends the dissenting financial creditor from settling for a lower amount payable under the resolution plan.
3.It held that financial creditor can dissent if the resolution plan is discriminatory or against a provision of law. However, a dissenting financial creditor cannot take advantage of Section 30(2)(b)(ii). A secured creditor cannot claim preference over another secured creditor at the stage of distribution on the ground of a dissent or assent, otherwise the distribution would be arbitrary and discriminative. The purpose of the amendment was only to ensure that a dissenting financial creditor does not get anything less than the liquidation value, but not for getting the maximum of the secured assets.
4.Relying on various judgments including India Resurgence ARC it held that the provisions of Section 30(2)(b)(ii) by law provides assurance to the dissenting creditors that they will receive as money the amount they would have received in the liquidation proceedings. This rule also applies to the operational creditors. This ensures that dissenting creditors receive the payment of the value of their security interest.
5.It held that it is correct to the extent that the legislature has not stipulated that the dissenting financial creditor shall be entitled to enforce the security interest. However, it is incorrect to state that the dissenting financial creditor would not be entitled to receive the liquidation value, the amount payable to him in terms of Section 53(1) of the Code.
6.It further held that Section 53 of the Code refers to Section 52 thereof. We would not isolate Section 53, when we refer to Section 30(2)(b)(ii) and make it meaningless and undo the legislative intent behind the amended provision, which is clear and apparent. Whenever required, in a reference made to Section 53 of the Code, we would have to refer to Section 52 to give meaning to Section 30(2)(b)(ii) of the Code. A dissenting financial creditor is entitled to not partake the proceeds in the resolution plan, unless a higher amount in congruence with its security interest is approved in the resolution plan.
7.It held that submission that the secured creditor’s entitlement to distribution under Section 53(1)(b)(ii) is applicable where the secured creditor relinquishes its security interest under Section 52 of the Code, and, therefore, is not applicable to dissenting financial creditors like the appellant is erroneous and unacceptable.
Order
