NCLAT (2024.05.27) in Beacon Trusteeship Ltd. Vs. Jayesh Sanghrajka (RP) and Ors. [(2024) ibclaw.in 350 NCLAT, Company Appeal (AT) (Insolvency) No. 1494-1495 of 2022, with Company Appeal (AT) (Insolvency) No. 99 of 2023 & I.A. No. 409 of 2023, with Company Appeal (AT) (Insolvency) No. 107 and 108 of 2023 ] held that;
It is relevant to notice that Hon’ble Supreme Court in `DBS Bank Ltd. Singapore’ Vs. `Ruchi Soya Industries Ltd. & Anr.’ 2024 SCC OnLine SC 3, made a reference to the earlier Judgment of the Hon’ble Supreme Court in `India Resurgence ARC Pvt. Ltd.’ (Supra), which reference is pending consideration before the Hon’ble Supreme Court. Law declared by Hon’ble Supreme Court in `India Resurgence ARC Pvt. Ltd.’ (Supra) can very well be relied until a different view is expressed by the Hon’ble Supreme Court in the reference pending before it.
Excerpts of the order;
A. Challenge to Valuation Report
# 24. We have heard Counsel for the parties and perused the record.
# 40. In the reference of valuation, which is conducted in the CIRP, we need to notice judgment of the Hon’ble Supreme Court in Ramkrishna Forgings Ltd. vs. Ravindra Loonkar, Resolution Professional of ACIL Ltd. & anr. – (2024) 2 SCC 122. In the case before the Hon’ble Supreme Court, the Adjudicating Authority on the Application filed by the RP for seeking approval of Resolution Plan, direction was issued to keep the Application in abeyance while directing the Official Liquidator to carry out the revaluation of the assets of the Corporate Debtor. The proceedings before the NCLT and NCLAT have been noticed in paragraph-1 of the judgment, which is as follows:
“Heard the learned counsel for the parties. The present appeal under Section 62 [“62. Appeal to Supreme Court.—(1) Any person aggrieved by an order of the National Company Law Appellate Tribunal may file an appeal to the Supreme Court on a question of law arising out of such order under this Code within forty-five days from the date of receipt of such order.(2) The Supreme Court may, if it is satisfied that a person was prevented by sufficient cause from filing an appeal within forty-five days, allow the appeal to be filed within a further period not exceeding fifteen days.”] of the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as “the Code”) is directed against the judgment dated 19-1-2022 (hereinafter referred to as “the impugned judgment”) passed by the National Company Law Appellate Tribunal (hereinafter referred to as “NCLAT”) in Ramkrishna Forgings Ltd. v. ACIL Ltd. (Resolution Professional) [Ramkrishna Forgings Ltd. v. ACIL Ltd. (Resolution Professional), 2022 SCC OnLine NCLAT 1151] which has upheld the order [IDBI Bank Ltd. v. ACIL Ltd., 2021 SCC OnLine NCLT 30896] passed by the adjudicating authority (National Company Law Tribunal [ The National Company Law Tribunal is a creature of Section 408 of the Companies Act, 2013. Under Section 60 of the Code, it has been designated as the adjudicating authority for corporate persons.] ) [hereinafter referred to as “the adjudicating authority — NCLT” or “adjudicating authority” or “NCLT”], Principal Bench dated 1-9-2021 [IDBI Bank Ltd. v. ACIL Ltd., 2021 SCC OnLine NCLT 30896] by which the application seeking approval of a resolution plan for ACIL Ltd. (hereinafter referred to as either “ACIL” or “the corporate debtor”) being IA No. 1636 of 2019 in CP (IB) No. 170(PB)/2018 (hereinafter referred to as “the approval application”) was kept in abeyance while directing the Official Liquidator (hereinafter referred to as “the OL”) to carry out a revaluation of the assets of the corporate debtor and to provide exact figures/value of the assets and exact valuation details.
# 41. The Hon’ble Supreme Court did not approve the judgment of NCLT and NCLAT and has held that Adjudicating Authority’s order to direct the revaluation was unsustainable. Revaluation directed by Adjudicating Authority was frowned upon. Following was held in paragraph 35, 36 and 37:
“35. At this juncture, it also cannot be lost sight of that it is for the FC(s) who constitute the CoC to take a call, one way or the other. Stricto sensu, it is now well settled that it is well within the CoC’s domain as to how to deal with the entire debt of the corporate debtor. In this background, if after repeated negotiations, a resolution plan is submitted, as was done by the appellant (resolution applicant), including the financial component which includes the actual and minimum upfront payments, and has been approved by the CoC with a majority vote of 88.56%, such commercial wisdom was not required to be called into question or casually interfered with.
36. Surprisingly, the discussion in both orders is wanting, except for the difference in the figure of the total outstanding dues and the amount of money which the appellant was to put up initially for taking over the corporate debtor, for this Court to understand as to what other reasons, grounded in the Code’s provisions, compelled the adjudicating authority — NCLT to embark upon the novel path of ordering revaluation by the OL. At the cost of repetition, nobody had moved before NCLT or raised any objection challenging the resolution plan pending approval. Even NCLAT has only indicated that when “figures of crores” are emerging stage-wise, “then there is no harm to look at the expert opinion”, which the adjudicating authority — NCLT in this case has asked for.
37. It is worthwhile to note that the adjudicating authority has jurisdiction only under Section 31(2) of the Code, which gives power not to approve only when the resolution plan does not meet the requirement laid down under Section 31(1) of the Code, for which a reasoned order is required to be passed. We may state that NCLT’s jurisdiction and powers as the adjudicating authority under the Code, flow only from the Code and the Regulations thereunder. It has been held in Jaypee Kensington Boulevard Apartments Welfare Assn. v. NBCC (India) Ltd. [Jaypee Kensington Boulevard Apartments Welfare Assn. v. NBCC (India) Ltd., (2022) 1 SCC 401 : (2022) 2 SCC (Civ) 165] : (SCC p. 669, para 273)
“273. … 273.1. The adjudicating authority has limited jurisdiction in the matter of approval of a resolution plan, which is well-defined and circumscribed by Sections 30(2) and 31 of the Code. In the adjudicatory process concerning a resolution plan under IBC, there is no scope for interference with the commercial aspects of the decision of the CoC; and there is no scope for substituting any commercial term of the resolution plan approved by the Committee of Creditors. If, within its limited jurisdiction, the adjudicating authority finds any shortcoming in the resolution plan vis-à-vis the specified parameters, it would only send the resolution plan back to the Committee of Creditors, for re-submission after satisfying the parameters delineated by the Code and exposited by this Court.” (emphasis supplied)”
# 42. The Adjudicating Authority has rightly noted and relied on the judgment of Hon’ble Supreme Court as referred to in paragraph-5 as extracted above, where Hon’ble Supreme Court held that valuation of immovable property is not an exact science, nor can it be determined like an algebraic problem, as it abounds in uncertainties and no straitjacket formula can be laid down for arriving at exact market value of the land. The valuation of Experts cannot be disregarded on objection filed by dissenting Financial Creditors. The Valuation Reports have been shared to all Financial Creditors and after examining the Valuation Reports, the Resolution Plan was approved by overwhelming majority.
B. Financial Creditors are subjected to haircut of 93% and Homebuyers are being given their flats without escalation of any price
# 44. Coming to the giving of the flats to the Homebuyers under the Resolution Plan, without escalation of price, it is to be noted that Homebuyers are creditors in a class and they have been recognized as Financial Creditors by amendments made in the Code. This Tribunal in its judgment in Company Appeal (AT) (Insolvency) No.926 of 2019 – Flat Buyers Association Winter Hills – 77, Gurgaon vs. Umang Realtech Pvt. Ltd. through IRP & Ors. decided on 04.02.2020, has noted the case of the Homebuyers and also noted the distinction between ‘Secured’ and ‘Unsecured’ Creditors. It is useful to extract paragraphs 4, 5 and 11 of the judgment, which are as follows:
“4. In “Committee of Creditors of Essar Steel India Limited v. Satish Kumar Gupta & Ors. ”, the Hon’ble Supreme Court made a distinction between the ‘Secured’ and ‘Unsecured Creditors’ and observed that protecting creditors in general is, no doubt, an important objective. Protecting creditors from each other is also important. 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 incentivised to vote for liquidation rather than resolution, as they would have better rights if the Corporate Debtor is liquidated. This would defeat the objective of the Code which is resolution of distressed assets and only if the same is not possible, should liquidation follow. The amended Regulation 38 does not lead to the conclusion that ‘Financial Creditors’ and ‘Operational Creditors’, or secured and unsecured creditors, must be paid the same amounts, percentage wise, under the resolution plan before it can pass muster. Fair and equitable dealing of Operational Creditors rights under the Regulation 38 involves the resolution plan stating as to how it has dealt with the interests of Operational Creditors, which is not the same thing as saying that they must be paid the same amount of their debt proportionately. So long as the provisions of the Code and the Regulations have been met, it is the commercial wisdom of the requisite majority of the Committee of Creditors which is to negotiate and accept a resolution plan, which may involve differential payment to different classes of creditors, together with negotiating with a prospective resolution applicant for better or different terms which may also involve differences in distribution of amounts between different classes of creditors.
5. In “Pioneer Urban Land and Infrastructure Limited & Anr. v. Union of India & Ors.”, the Hon’ble Supreme Court upheld the Explanation below Section 5(8) (f) to hold that allottees (Homebuyers) of Infrastructure Company are ‘Financial Creditors’. It further observed that RERA is in addition to and not in derogation of the provisions of any other law for the time being in force, also makes it clear that the remedies under RERA to allottees were intended to be additional and not exclusive remedies. Therefore, provisions of the Code would apply in addition to RERA.
11. In most cases, the Committee of Creditors take ‘haircut’. The Resolution Applicants satisfy them most of the time with lesser amount than the amount as determined. In the case of allottees (Financial Creditors), there cannot be a haircut of assets/ flats/ apartment.”
# 45. With regard to assets, i.e, unit, it was observed by this Tribunal that units have to be transferred to Unsecured creditors – the Homebuyers and not to the Secured Creditors. Hence, comparison of their claim by the dissenting Financial Creditors from the Homebuyers, is not appropriate. The Homebuyers, who have been allotted the house and amount of consideration has already been fixed in the allotment and it was undertaken by the Corporate Debtor to handover the units on payment of consideration, no exception can be taken to handing over of the units to the Homebuyers on consideration, already paid. In this context, we may refer to judgment of this Tribunal, delivered on 02.11.2023 in Company Appeal (AT) (Insolvency) No.1162 of 2023 – Sabari Realty Pvt. Ltd. vs. Sivana Realty Pvt. Ltd. & Ors. In the above case, Homebuyers were treated in two groups, i.e. ‘affected’ and ‘unaffected’. Affected Homebuyers were those whose units were mortgaged, but allotment was made without taking consent of the Financial Creditor, to whom the units were mortgaged. The other category was those Homebuyers, who were allotted the units, after obtaining no objection from Financial Creditor, to whom the units were mortgaged. The Resolution Plan was approved treating them in two different categories, which was challenged before this Tribunal, on the ground that the treatment of Homebuyers, cannot be discriminated. This Tribunal in the above context held that treatment of Homebuyers in two categories as per the Resolution Plan, which was approved by the CoC, cannot be objected. This Tribunal also observed that reference has to be on fair and equitable treatment. It is useful to extract paragraphs 24, 25, 26 and 27 of the judgment, which are as follows:
“24. The above judgment does not help the Appellant in the present case since in the above case the question was distribution of amount under the Resolution Plan to the Operational Creditors inter se and this Tribunal directed payment of amount to the Operational Creditors in the same proportion to uphold the Resolution Plan. The present is not a case of distribution of any amount rather Resolution Plan provides for ways and manner to complete the project and handover units to the allottees. Allottees have been classified in two groups – ‘Affected’ and ‘Unaffected’, as noted above, and we have found the classification justified in the treatment of claims. Learned counsel for the Appellant has failed to point out any violation of any provision of law by aforesaid classification of ‘Affected’ and ‘Unaffected’ homebuyers. We, thus, are of the view that the Resolution Plan does not violate any provision of law.
25. We are conscious that the Hon’ble Supreme Court in “Committee of Creditors of Essar Steel India Limited Through Authorised Signatory vs. Satish Kumar Gupta & Ors., (2020) 8 SCC 531” has laid down that there can be difference in payment of the different category of creditors. In Para 88 of the judgment following has been held:
“88. By reading paragraph 77 (of Swiss Ribbons) dehors the earlier paragraphs, the Appellate Tribunal has fallen into grave error. Paragraph 76 clearly refers to the UNCITRAL Legislative Guide which makes it clear beyond any doubt that equitable treatment is only of similarly situated creditors. This being so, the observation in paragraph 77 cannot be read to mean that financial and operational creditors must be paid the same amounts in any resolution plan before it can pass muster. On the contrary, paragraph 77 itself makes it clear that there is a difference in payment of the debts of financial and operational creditors, operational creditors having to receive a minimum payment, being not less than liquidation value, which does not apply to financial creditors. The amended Regulation 38 set out in paragraph 77 again does not lead to the conclusion that financial and operational creditors, or secured and unsecured creditors, must be paid the same amounts, percentage wise, under the resolution plan before it can pass muster. Fair and equitable dealing of operational creditors’ rights under the said Regulation involves the resolution plan stating as to how it has dealt with the interests of operational creditors, which is not the same thing as saying that they must be paid the same amount of their debt proportionately. Also, the fact that the operational creditors are given priority in payment over all financial creditors does not lead to the conclusion that such payment must necessarily be the same recovery percentage as financial creditors. So long as the provisions of the Code and the Regulations have been met, it is the commercial wisdom of the requisite majority of the Committee of Creditors which is to negotiate and accept a resolution plan, which may involve differential payment to different classes of creditors, together with negotiating with a prospective resolution applicant for better or different terms which may also involve differences in distribution of amounts between different classes of creditors.”
26. What was emphasised in the judgment is that there shall be fair and equitable treatment in dealing dues of Operational Creditors and further there can be difference in payment to the Financial Creditor and the Operational Creditors. Hon’ble Supreme Court in the said judgment has held that commercial wisdom of the Committee of Creditors cannot be substituted. In Para 144 and 147 following has been held:
“144. What is important to note is that when one reads the abovementioned judgment, it is a majority of 66% of the Committee of Creditors who has exercised the discretion vested in it under the Code in this particular manner, which has then correctly not been disturbed by the NCLT and NCLAT. Far from helping Shri Sibal’s client, the principle that is applied in such a case is that ultimately it is the commercial wisdom of the requisite majority of the Committee of Creditors that must prevail on the facts of any given case, which would include distribution in the manner suggested in Orissa Manganese (supra). It is, therefore, not possible to accept the argument that the Adjudicatory Authority and consequently the Appellate Authority would be vested with the discretion to apply what was applied by the Committee of Creditors in the Orissa Manganese case (supra). This submission is also devoid of merit and is, therefore, rejected.” “147. The NCLAT judgment which substitutes its wisdom for the commercial wisdom of the Committee of Creditors and which also directs the admission of a number of claims which was done by the resolution applicant, without prejudice to its right to appeal against the aforesaid judgment, must therefore be set aside.”
27. We, thus, are of the view that commercial wisdom of the Committee of Creditors, which has approved the Resolution Plan under which different treatment has been given to ‘Affected Homebuyers’ and ‘Unaffected Homebuyers’, cannot be faulted. We, thus, are of the view that there are no grounds made out to challenge the approval of the Resolution Plan. Further, the Adjudicating Authority has also rightly rejected the objections filed by the Appellant by I.A. No. 933 of 2022.”
46. It is further relevant to notice that in the present case, the CoC has approved the Resolution Plan, which directed the haircut to the Financial Creditors and decided to handover the units to Homebuyers, after completion of the construction, which construction cost was undertaken to be spent by the SRA, as per the RFRP and Resolution Plan. It was a ‘commercial wisdom’ of the CoC, which approved the pay-out to different Creditors. Present is not a case, where any violation of Section 30, sub-section (2) has been proved by the Appellant. As observed above, Appellant(s) being dissenting Financial Creditors are entitled to receive their payment as per Section 30, sub-section (2) (b) (ii) and the amounts, which have been offered to dissenting Financial Creditors, is in accordance with the said provision. We, thus, are not persuaded to interfere with the order of the Adjudicating Authority, approving the Resolution Plan on the above ground raised by the Appellant. The Adjudicating Authority in the order dated 09.01.2022, has adverted to all relevant consideration on which Resolution Plan is to be checked for compliances of the statutory provisions and there is detailed consideration in the judgment. The Adjudicating Authority in paragraph-6 of the judgment has returned a finding regarding compliance of Sections 30(2)(a), 30(2)b), 30(2)(c), 30(2)(d), 30(2)(e) and 30(2)(f). The Adjudicating Authority has also adverted to the various Minutes of the CoC. We may only notice the observation of the Adjudicating Authority in paragraph-6 (f) and (j), which are as follows:
“(f). Section 30(2)(f) of IBC read with Regulations 38 and 39 of CIRP Regulations: The key requirements under these provisions essentially speak to the feasibility and viability of the Plan and the capability of the RA. These aspects have been adequately dealt with in the Chart reproduced hereinabove and we may only add that there has not been any serious challenge to the capability of the RA, or the feasibility or viability of the Plan. Moreover, the way the RA has effectively dealt with the Society and DB, paid the outstanding amounts towards MCGM premia and other outgoings, and proceeded to resume construction under the Project as its Construction Manager pending consideration of the Plan under Section 31 of IBC, bears testimony to the feasibility and viability of the Plan as also the capability and keenness in implementation on part of the RA.
(j) This Tribunal has already upheld the CoC’s decision on the equitable treatment and distribution under the Plan to various classes of creditors in its Order dated 2.12.2022 and we confirm the same. We wish to emphasize that the ultimate decision on technical and commercial aspects of the Plan is that of the COC under the commercial wisdom doctrine. It is not open to this Tribunal to second-guess the merits of such decision in exercise of its power under Section 31 of IBC. This has been the consistent legal position as laid down by the Hon’ble Supreme Court of India in K. Sashidhar v. Indian Overseas Bank, (2019) 12 SCC 150, Committee of Creditors v. Satish Kumar Gupta, (2020) 8 SCC 531 and several decisions thereafter, including Jaypee Kensington v. NBCC, (2022) 1 SCC 401, wherein the resolution plan involved the revival of a real estate company and dealt with the interests of homebuyers and other classes of financial creditors.”
# 47. We, thus, do not find any infirmity in the order of the Adjudicating Authority, approving the Resolution Plan dated 09.01.2022.
C. Payment as per value of their security interest in the assets of the Corporate Debtor
# 49. The question that a Financial Creditor including a dissenting Financial Creditor whether is entitled to receive the amount in a Resolution Plan as per his security interest has been considered and decided by the Hon’ble Supreme Court and this Tribunal as well. We may refer to the Judgment of the Hon’ble Supreme Court in the matter of `India Resurgence ARC Pvt. Ltd.’ Vs. `Amit Metaliks Ltd. & Anr.’ reported in 2021 SCC OnLine SC 409. The Hon’ble Supreme Court in the above case has held that extent of the amount receivable by a dissenting Financial Creditor is provided in Section 30(2)(b). The argument that Financial Creditor is entitled to receive amounts as per security interest was rejected. In para 22 of the Judgment following was laid down:
“22. The limitation on the extent of the amount receivable by a dissenting financial creditor is innate in Section 30(2)(b) of the Code and has been further exposited in the decisions aforesaid. 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 the 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.”
# 50. Another Judgment which needs to be noticed is the Judgment of this Tribunal in the matter of `Edelweiss Asset Reconstruction Ltd.’ Vs. `Mr. Anuj Jain, Resolution Professional of Ballarpur Industries Ltd. & Ors.’, 2023 SCC OnLine NCLAT 1908. While considering the security interest which was owned by Financial Creditor, it was held that despite Financial Creditor have security interest in the assets of the Corporate Debtor they can be dealt with in the Resolution Plan in any manner as per the commercial wisdom of the CoC. In paragraph 22 of the Judgment, following was observed:
“22. The above can be explained by taking example of a Financial Creditor. Financial Creditors may also have security interest in the assets of the Corporate Debtor. Section 30 of the Code, as amended from time to time, provides for payment to Operational Creditor(s) as well as dissenting Financial Creditor(s), which payment shall not be less than the amount which they are entitled to receive under Sub-section (1) of Section 53 in event of liquidation of the Corporate Debtor. Insolvency resolution process and liquidation are two different concepts with two different consequences. When in the insolvency resolution process claim of Financial Creditors are dealt with, there is no cap to the effect that they are entitled to receive the amount equivalent to their debt which is owed by the Corporate Debtor. Thus, despite Financial Creditor having security interest in the assets of the Corporate Debtor, they can be dealt with in the resolution plan in any manner as per the commercial wisdom of the CoC. When the security interest of Financial Creditor can be dealt with in the resolution plan in any manner, we fail to see that how a third party having security interest in the assets of the Corporate Debtor can claim any higher status or different status from the Financial Creditor.”
# 51. Another Judgment which needs to be noticed in the Judgment of the Hon’ble Supreme Court in Comp. App. (AT) (Ins.) No.405/2023, `ICICI Bank Ltd.’ Vs. `BKM Industries Ltd. & Anr.’. In paragraphs 15 and 16 of this Judgment following was held:
“15. When we look into Section 53, sub-section (1) (b), debt owed to a secured creditor has to be distributed equally between and amongst workmen’s dues and debts owed to a secured creditors. The debt owed to the secured creditor is a debt as admitted in the CIRP. Admittedly, the claim as submitted by the Appellant was admitted in the CIRP and debt owed to Appellant is as per admitted claim. The distribution of the debt has to be as per the debt of the Financial Creditors. The ‘debt’ is defined in Section 3(11) of the IBC, which is as follows:
“3(11) “debt” means a liability or obligation in respect of a claim which is due from any person and includes a financial debt and operational debt;”
16. Section 3, sub-section (6) defines the ‘claim’, which claim is to be filed by a Financial Creditor as per Regulation 8, sub-section (1) of the CIRP Regulations, 2016. Thus, the scheme of Section 53, sub-section (1), clearly indicates distribution as per the debt and in the legislative scheme there is no scope of distribution of assets among the Financial Creditors as per security interest. The issue which has been raised by the Appellant, came for consideration before this Tribunal in Small Industries Development Bank of India vs. Vivek Raheja and Ors. where also the Appellant had claimed distribution of assets as per security interest. An IA was filed by the Appellant (SIDBI), seeking a direction to distribute as per security interest. In paragraph 2, following case of the SIDBI has been noticed:
“2. Brief facts of the case giving rise to this Appeal are:-
• Oriental Bank of Commerce had filed a Section 7 Application under the Insolvency and Bankruptcy Code, 2016 (IBC in short) against the Corporate Debtor – M/s. Gupta Exim (India) Pvt. Ltd. which was admitted by the Adjudicating Authority vide Order dated 29th October, 2019. In the ‘Corporate Insolvency Resolution Process’ in 16th Meeting of ‘Committee of Creditors’, Resolution Plans were discussed. Revised Resolution Plans were submitted by the prospective Resolution Applicants. Resolution Plan was put to e-Vote between 07th August, 2021 and 16th August, 2021 and by majority of 97.97%, the Resolution Plan of ‘Lotus Textiles’ and Mr. Vijayant Mittal was approved. Appellant sent an Objection dated 16th August, 2021 to the distribution to the Appellant under the Resolution Plan.
• An I.A. No. 581 of 2021 was filed by the Appellant for direction to the Resolution Professional to distribute the proceeds of the Resolution Plan where following prayers were made:
1. The present application may kindly be allowed and the directions be issued to the Respondent No. 1 modify/clarify the distribution to dissenting members as per the Resolution Plan and distribute the proceeds of the resolution plan to Applicant SIDBI for an amount of Rs. 5,64,97,893/- in priority in accordance with provisions of IBC 2016 in the interest of justice and equity.
2. Interim stay be granted on distribution of the resolution plan amount by the Resolution Professional to the CoC members till the present application is decided.”
• The case of the Appellant in the Application was that as per security interest of the Appellant, the Appellant is entitled to 6.93 % i.e. the amount of Rs. 5,64,97,893/- and as per voting share as approved by the CoC, the Appellant is entitled to 2.03% i.e. Rs. 1,65,47,078/-. The case of the Appellant set up in the Application is that he is entitled for his distribution of plan amount as per value of the security interest of the Appellant. The Application was objected by the Resolution Professional. The Adjudicating Authority by the Impugned Order dated 17th March, 2022 rejected the I.A. No. 581 of 2021 upholding the decision of the CoC for distribution of proceeds of the Resolution Plan as per the voting share. Appellant aggrieved by the said Order, has come up in this Appeal.”
# 52. Another Judgment which needs to be noticed is Judgment of this Tribunal in Comp. App. (AT) (Ins.) No. 654/2022, `Paridhi Finvest Private Ltd.’ Vs. `Value Infracon Buyers Association & Ors.’. In the above case also the Resolution Plan was sought to be challenged on the ground that Appellant was a Financial Creditor was entitled for higher amount. The submission of the Appellant that Appellant was entitled for payment as per security value of the Appellant was not accepted. In paragraph 12 of the Judgment following was held:
“12. The Appellant’s claim was admitted in the CIRP for Rs.1,86,00,000/- and it having vote share of 2.38%, it has been proposed an amount of Rs.1,00,00,000/-, which is more that the amount, which would have been payable to the Appellant in case the amount is paid as per priority under Section 53(1) of the IBC. The learned Counsel for the Appellant submits that the Appellant was entitled for amount as per security value of the Appellant. It having equitable mortgage of 30 units/ flats. It is well settled that the security holder cannot insist payment of amount as per security interest, when there is resolution of the Corporate Debtor through a Resolution Plan. In this context, we may refer to judgment of the Hon’ble Supreme Court in India Resurgence ARC Pvt. Ltd. V. Amit Metaliks & Anr. (2021) SCC OnLine SC 409. In paragraphs 16 and 17 of the judgment, following have been held:
“16. The repeated submissions on behalf of the appellant with reference to the value of its security interest neither carry any meaning nor any substance. What the dissenting financial creditor is entitled to is specified in the later part of sub-section (2)(b) of Section 30 of the Code and the same has been explained by this Court in Essar Steel [Essar Steel (India) Ltd. (CoC) v. Satish Kumar Gupta, (2020) 8 SCC 531 : (2021) 2 SCC (Civ) 443] as under : (SCC pp. 628-29, para 128)
“128. When it comes to the validity of the substitution of Section 30(2)(b) by Section 6 of the amending Act of 2019, it is clear that the substituted Section 30(2)(b) gives the operational creditors something more than was given earlier as it is the higher of the figures mentioned in subclauses (i) and (ii) of sub-clause (b) that is now to be paid as a minimum amount to the operational creditors. The same goes for the latter part of subclause (b) which refers to dissentient financial creditors. Ms Madhavi Divan is correct in her argument that Section 30(2)(b) is in fact a beneficial provision in favour of the operational creditors and dissentient financial creditors as they are now to be paid a certain minimum amount, the minimum in the case of the operational creditors being the higher of the two figures calculated under sub-clauses (i) and (ii) of clause (b), and the minimum in the case of dissentient financial creditor being a minimum amount that was not earlier payable. As a matter of fact, pre-amendment, secured financial creditors may cramdown unsecured financial creditors who are dissentient, the majority vote of 66% voting to give them nothing or next to nothing for their dues. In the earlier regime it may have been possible to have done this but after the amendment such financial creditors are now to be paid the minimum amount mentioned in sub-section (2). Ms Madhavi Divan is also correct in stating that the order of priority of payment of creditors mentioned in Section 53 is not engrafted in sub-section (2)(b) as amended. Section 53 is only referred to in order that a certain minimum figure be paid to different classes of operational and financial creditors. It is only for this purpose that Section 53(1) is to be looked at as it is clear that it is the commercial wisdom of the Committee of Creditors that is free to determine what amounts be paid to different classes and sub-classes of creditors in accordance with the provisions of the Code and the Regulations made thereunder.”
(emphasis supplied)17. Thus, 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.”
# 53. Learned Counsel for the Appellants have relied on the Judgment of the Hon’ble Supreme Court in `Vistara ITCL (India) Ltd. & Ors.’ Vs. `Dinkar Venkatasubramanian & Anr.’, (2023) 7 SCC 324. Judgment of the Hon’ble Supreme Court in `Vistara ITCL (India) Ltd. & Ors.’ (Supra) was a case where Hon’ble Supreme Court has exercised its jurisdiction under Article 142 of the Constitution. In `Edelweiss Asset Reconstruction Company Ltd.’ (Supra). The Judgment of the `Vistara ITCL (India) Ltd. & Ors.’ (Supra) was noticed in detail and following observations were made from paragraphs 33 to 38, which is reproduced as follows:
“33. The Appellant has next relied Hon’ble Supreme Court judgment in “Vistra ITCL (India) Ltd.” (supra). In the above case also Amtek Auto Limited (Corporate Debtor) has pledged its shares for loan facility availed by two group companies i.e. Brassco Engineers Ltd. and WLD Investments Pvt. Ltd. In the insolvency proceeding of the Corporate Debtor, claim was filed by Vistra ITCL (India) Ltd., the Security Trustee in Form ‘C’, which claim was rejected. Resolution Plan was approved. Thereafter, an application was filed claiming right on the basis of pledged shares. I.A. No. 62 of 2020 as well as Appeal having been dismissed, Appeal was filed before the Hon’ble Supreme Court. Hon’ble Supreme Court in the above case, noticed the judgment of “Anuj Jain v. Axis Bank Ltd.” (supra). Hon’ble Supreme Court in Para 9 noticed the issues raised and observed that two-fold answers can be given to the problem. First was to treat the Secured Creditor as a Financial Creditor, which according to the judgment of the Hon’ble Supreme Court may require reference to a larger bench. Hence, the Hon’ble Supreme Court proceeded to the Second option under which the Hon’ble Supreme Court held that Appellant was entitled to retain the security interest in the pledged shares, which means was entitled to retain the security proceeds on the sale of the said pledged shares. In Para 9 following was held:
“9. Thus, we are presented with a difficult situation, wherein, Appellant No. 1 – Vistra, a secured creditor, is being denied the rights under Section 52 as well as Section 53 of the Code in respect of the pledged shares, whereas, the intent of the amended Section 30(2) read with Section 31 of the Code is too contrary, as it recognises and protects the interests of other creditors who are outside the purview of the CoC. To our mind, the answer to this tricky problem is twofold. First is to treat the secured creditor as a financial creditor of the Corporate Debtor to the extent of the estimated value of the pledged share on the date of commencement of the CIRP. This would make it a member of the CoC and give it voting rights, equivalent to the estimated value of the pledged shares. However, this may require re consideration of the dictum and ratio of Anuj Jain (supra) and Phoenix ARC (supra), which would entail reference to a larger bench. In the context of the present case, the said solution may not be viable as the resolution plan has already been approved by the CoC without Appellant No. 1 Vistra being a member of the CoC. Therefore, we would opt for the second option. The second option is to treat the Appellant No. 1 – Vistra as a secured creditor in terms of Section 52 read with Section 53 of the Code. In other words, we give the option to the successful resolution applicant – DVI (Deccan Value Investors) to treat the Appellant No. 1 – Vistra as a secured creditor, who will be entitled to retain the security interest in the pledged shares, and in terms thereof would be entitled to retain the security proceeds on the sale of the said pledged shares under Section 52 of the Code read with Rule 21A of the Liquidation Process Regulations. The second recourse available, would be almost equivalent in monetary terms for the Appellant No. 1 Vistra, who is treated it as a secured creditor and is held entitled to all rights and obligations as applicable to a secured creditor under Section 52 and 53 of the Code. This to our mind would be a fair and just solution to the legal conundrum and issue highlighted before us.”
34. In the aforesaid judgment the Hon’ble Supreme Court has noticed provisions of Section 52, Section 53 and Section 30 of the Code. The submission which has been pressed by learned counsel for the Respondent is that the judgment of the Hon’ble Supreme Court in “Vistra ITCL (India) Ltd.” is judgment of the Supreme Court where Hon’ble Supreme Court has exercised its jurisdiction under Article 142 of the Constitution. Observation of the Hon’ble Supreme Court in Para 9 that “This to our mind would be a fair and just solution to the legal conundrum and issue highlighted before us.”, indicate that the solution which was followed by Supreme Court was in the facts of the said case and observation of the Hon’ble Supreme Court in Para 9 cannot be read as laying law within meaning of Article 141.
35. A third-party security interest holder is entitled to retain the security proceeds on the land of security interest under Section 52 of the Code. As noted above, Section 52 and 53 becomes applicable only in Liquidation Proceeding and reference of Section 53 under Section 30(2) is for the purpose of computing the payment to Operational Creditors and dissenting Financial Creditors to which they may be entitled under Section 53.
36. We, thus, accept the submission of learned counsel for the Respondent that judgment of Hon’ble Supreme Court in “Vistra ITCL (India) Ltd.” and direction issued in Para 9 have been in exercise of Article 142. Learned counsel for the Respondent has placed reliance on judgment of Hon’ble Supreme Court in “State of Pujab v. Rafiq Masih, (2014) 8 SCC 883”, where Hon’ble Supreme Court dealing with Article 141 and 142 of the Constitution of India enumerated the principles in Paras 8 and 11, which are to the following effect:
“8. In our view, the law laid down in Chandi Prasad Uniyal’s case, no way conflicts with the observations made by this Court in the other two cases. In those decisions, directions were issued in exercise of the powers of this Court under Article 142 of the Constitution, but in the subsequent decision this Court under Article 136 of the Constitution, in laying down the law had dismissed the petition of the employee. This Court in a number of cases had battled with tracing the contours of the provision in Article 136 and 142 of the Constitution of India. Distinctively, although the words employed under the two aforesaid provision speak of the powers of this Court, the former vest a plenary jurisdiction in supreme court in the matter of entertaining and hearing of appeals by granting special leave against any judgment or order made by a Court or Tribunal in any cause or matter. The powers are plenary to the extent that they are paramount to the limitations under the specific provisions for appeal contained in the Constitution or other laws. Article 142 of the Constitution of India, on the other hand is a step ahead of the powers envisaged under Article 136 of the Constitution of India. It is the exercise of jurisdiction to pass such enforceable decree or order as is necessary for doing ‘complete justice’ in any cause or matter.
11. Article 136 of the Constitution of India was legislatively intended to be exercised by the Highest Court of the Land, with scrupulous adherence to the settled judicial principle well established by precedents in our jurisprudence. Article 136 of the Constitution is a corrective jurisdiction that vest a discretion in the Supreme Court to settle the law clear and as forthrightly forwarded in the case of Union of India v. Karnail Singh, it makes the law operational to make it a binding precedent for the future instead of keeping it vague. In short, it declares the law, as under Article 141 of the Constitution.”
37. It has categorically held by the Hon’ble Supreme Court in the above judgment that Article 142 of the Constitution is supplementary in nature and cannot supplant the substantive provisions, though they are not limited by the substantive provisions in the statute. It is a power that gives preference to equity over law. Differentiation in Article 141 and 142 has been noticed. Following has been observed in Para 12:
“12. ….This Court on the qui vive has expanded the horizons of Article 142 of the Constitution by keeping it outside the purview of Article 141 of the Constitution and by declaring it a direction of the Court that changes its complexion with the peculiarity in the facts and circumstances of the case.”
38. We, thus, are of the view that judgment of Hon’ble Supreme Court in “Vistra ITCL (India) Ltd.” is in facts of the said case. The Appellant in the present case cannot rely on the said judgment as a declaration of law within the meaning of Article 141 of the Constitution of India.”
# 54. Judgment of the Hon’ble Supreme Court in `Vistara ITCL (India) Ltd. & Ors.’ (Supra) does not come to help of the Appellant in the present case. It is relevant to notice that Hon’ble Supreme Court in `DBS Bank Ltd. Singapore’ Vs. `Ruchi Soya Industries Ltd. & Anr.’ 2024 SCC OnLine SC 3, made a reference to the earlier Judgment of the Hon’ble Supreme Court in `India Resurgence ARC Pvt. Ltd.’ (Supra), which reference is pending consideration before the Hon’ble Supreme Court. Law declared by Hon’ble Supreme Court in `India Resurgence ARC Pvt. Ltd.’ (Supra) can very well be relied until a different view is expressed by the Hon’ble Supreme Court in the reference pending before it.
#55. We thus are fully satisfied that Appellants are not entitled to claim payment as per the security interest in the asset of the Corporate Debtor.
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