Square Port Shipyard Private Limited Vs. Mr. Vijaykumar Iyer & Others - It is trite law that the auction purchaser gets the assets on “as is where is” and “as is what is” basis and such assets have to be free from all obligations or encumbrances, unless otherwise made part of the bidding document.

NCLT Mumbai-1 (02.01.2023) in Square Port Shipyard Private Limited  Vs. Mr. Vijaykumar Iyer & Others   [I.A. 3417 OF 2023 in C.P.(IB) No. 292/MB/2017] held that;

• It is trite law that the auction purchaser gets the assets on “as is where is” and “as is what is” basis and such assets have to be free from all obligations or encumbrances, unless otherwise made part of the bidding document. 

• Accordingly, the liability to pay Pre-CIRP dues can not be fastened on the Applicant simply because the Dabhol Shipyard was purchased in auction on “as is where is” and “as is what is basis”.

Excerpts of the order;

1. This Application IA no. 3417/2023 is filed under section 60(5) of the Insolvency & Bankruptcy Code, 2016 (“Code”) by M/s Square Port Shipyard Private Limited (“Applicant”) in the Liquidation Process of M/s Bharati Defence and Infrastructure Limited (‘Corporate Debtor”) for directions to Sh. Vijaykumar Iyer, the Liquidator (“Respondent No. 1”), M/s Maharashtra Samarth Kamgar Sansthan (“Respondent No. 2”) and M/s Bhartiya Kamgar Sena Union (“Respondent No. 3”). The Applicant has prayed the following :

a. Necessary order and/or directions to the concerned Police State i.e. Dapoli Police Station to provide adequate police protection to the Officer and/or employees and/or professionals of the Applicant as and when required;

b. Necessary order and/or directions to the members of the Respondent Nos. 2 & 3 not to create any hinderance with regards to the visit of the Office and/or employees and/or agents and/or professionals of the Applicant;

c. Necessary order and/or directions restraining the members of the Respondent Nos. 2 & 3 to do any illegal activities such as to put up a "Dharna" on 15th August 2023 and/or any time thereafter;

d. Necessary order and/or directions restraining the Collector Zhilla Adhikar, Superintendent of Police, SDO & Tehsildar and other authority concerned with Dabhol Village to entertain any such application and/or to grant any permission/s and/or support "Dharna" to be put up by the members of the Respondent Nos. 2 & 3 and/or Contractors along with Local Politicians on 15th August 2023 and/or thereafter;

e. Necessary order and/or directions that the dues of the members of the Respondent Nos. 2 & 3 and/or Contractors are already been paid by Respondent No. 1 and any grievance with regards to the payment of past dues of whatsoever nature of the members of Respondent Nos. 2 & 3 be placed before Respondent No. 1 and not the Applicant;

f. Necessary order and/or directions restraining the Local Politician such as MLA /MP/Minister and Union Leaders and MLA/MP/Ministers of Different Political Parties to create disturbance and/or hindrance for the Applicant to run and/or start the Shipyard;

g. pending the hearing and final disposal, Necessary order and/or directions restraining the members of the Respondent Nos. 2 & 3 and/or Contractors to claim their respective dues from the Applicant and/or any grievance with regards to the payment of past dues of whatsoever nature of the members of Respondent Nos. 2 & 3 be placed before Respondent No. 1 and not the Applicant;

h. pending the hearing and final disposal of this IA, Necessary order and/or directions restraining the members of the Respondent Nos. 2 & 3 not do any illegal activities such as to put up a "Dharna" on 15th August 2023;

i. pending the hearing and final disposal of this IA, Necessary order and/or directions restraining the Collector Zhilla Adhikar, Superintendent of Police, Dabhol Police Station, SDO & Tehsildar and other authority/s concerned with Dabhol Village to entertain any such application and/or to grant any permission/s and/or support "Dharna" to be put up by the members of the Respondent Nos. 2 & 3 and/or Contractors along with Local Politicians on 15th August 2023;

j. pending the hearing and final disposal of this IA, Necessary order and/or directions restraining the Local Politician such as MLA/MP /Minister and Union Leaders and MLA/MP/Ministers of Different Political Parties to create disturbance and/or hindrance for the Applicant to run and/or start the Shipyard;

k. pending the hearing and final disposal of this IA, Necessary orders and/or directions directing the Respondent Nos. 2 & 3 not to create any hinderance with regards to the visit of

the Office and/or employees and/or agents and/or professionals of the Applicant in order that the Applicant be able to function smoothly and effectively the on-going.

# 2. The Applicant is the Auction Purchaser in respect of M/s. Dabhol Shipyard (a unit of M/s. Bharati Defence and Infrastructure Limited i.e. Corporate Debtor) including its Land and building, plant & Machinery, Inventory, Semi-Constructed Vessel and various other movable assets as mentioned in the said Sale Certificate dated 10th May 2023.

2.1. The Applicant took the possession of the said Dabhol Shipyard as the on-going on or about May 2023 in presence of representative of Respondent No. 1. The Applicant submits that in or about May 2023, when the Members of Respondent Nos. 2 & 3 approached the Applicants and informed that the dues of the members of Respondent Nos. 2 & 3 are not fully paid by the Respondent No. 1, to the contrary, the Applicants were informed by the Respondent No. 1 that the due of the Members of Respondent Nos. 2 & 3 are fully paid as per the Law time being in force.

2.2. The members of the Respondent Nos. 2 & 3 are/were associated with Dabhol Shipyard (a unit of M/s. Bharati Defence and Infrastructure Limited ie. Corporate Debtor) and the Applicant is the Auction Purchaser of the said Dabhol Shipyard and all the claims and/or dues of the members of Respondent Nos. 2 & 3 and/or Respondent Nos. 2 & 3 are to be paid by Respondent No. 1.

2.3. It is the case of the Applicant that as and when the Officers and/or the Employees and/or professionals engaged by the Applicant visit the Shipyard, the workers and/or Members of the Respondent Nos. 2 & 3 and/or contractors at site creates issues with regards to freely visit of the Applicant's Officers and/or the Employees and/or professionals engaged by the Applicant at its own Property and/or the site.

2.4. The Respondent No. 2 stated to have addressed its letter dated 17th June 2023 to Applicant, inter alia giving the list of the Committee Members of the said Respondent No. 2 with a request to provide all necessary facilities on duty unit committee members to solve day to day problems of the Workmen and Staff and has asked to treat the said Committee Members as Protected Workmen under the Provision of the Industrial Disputes Act 1947. It is pertinent to note that the said Union and/or Unit Committee Members are associates with Dabhol Shipyard (a unit of M/s. Bharati Defence and Infrastructure Limited i.e. Corporate Debtor) and the Applicant is the Auction Purchaser of the said Ongoing Concern and is now independently wish to run the said Shipyard.

2.5. The Applicant is in process of repairs of the plant & Machinery and Semi-Constructed Vessel in order that the said plant & Machinery and Semi-Constructed Vessel be utilized and hence requires special and/or specific engineers and/or professionals to visit the said Shipyard, with such obstructions by the members of the Respondent Nos. 2 & 3 and/or other antisocial elements and intervention of political parties, it is becoming difficult for the Applicant to run the on-going concern. 

2.6. The is in process of selling the scrap and/or movable assets of  which the Applicant has no use and/or the said scrap and/or movable assets cannot be utilized for the benefit of the said Shipyard, the said process requires visitation of the said purchaser who are interested in purchase of the said scrap and/or movable assets. The Applicant submits that for the above act of the Applicant, the visit of the intending purchasers having similar interest and their visit is becoming impossible.

2.7. The Respondent No. 2 once again addressed a Letter dated 24th July 2023 to the Applicant inter alia giving a heading as "Illegal Activates", the said Letter inter alia states that the Applicant in collusion with Workmen of Respondent No. 3 have deprived the Workmen their legislative rights and the said Workmen have resigned as the member of the Respondent No. 3 and have become the members of Respondent No. 2 and have made certain allegations against the Applicant.

2.8. On or about May 2023, the Applicant's Officer visited the said Shipyard and/or Site to take the inventory and/or secure the movable properties at Shipyard and/or at site, the Members of Respondent Nos. 2 & 3 surrounded the Officer of the Applicant and threatened him of dire consequences if the said Officer and/or any other Officer and/or Employee of the Applicant visit at site and/or try to remove the movable goods of which the Applicant is the Owner. The Applicant submits that these incidence have taken place from time to time. The Applicant has time and again informed the concerned Police Station ie. Dapoli Police Station with regards the said incidences. It is pertinent to note that the said concerned police. station though have taken the compliant of the Applicant but have not acted upon.

2.9. The members of the Respondent Nos. 2 & 3 not only threaten the Officer of the Applicant but also have tried to manhandle the Officer Applicant when visited the Shipyard. It is pertinent to note that the Applicant have paid INR 184,51,92,273/- (Rupees One Hundred and Eight Four Crores, Fifty- One Lakhs Ninety- Two Thousand Two Hundred and Seventy Three Only) to purchase the said Land and building, plant & Machinery, Inventory, Semi-Constructed Vessel and various other movable assets i.e. Dabhol Shipyard. The said Land and building, plant & Machinery, Inventory, Semi-Constructed Vessel and various other movable assets belong to the Applicant and due to the antisocial elements as stated above the Applicant's Officer and Employees and/or Professionals have difficulty in visiting the said Shipyard.

2.10. The Applicant is in process of repairs of the plant & Machinery and Semi-Constructed Vessel in order that the said plant & Machinery and Semi-Constructed Vessel be utilized and hence requires special and/or specific engineers and/or professionals to visit the said Shipyard, with such obstructions by the members of the Respondent Nos. 2 & 3 and/or other

antisocial elements and intervention of political parties, it is becoming difficult for the Applicant to run the on-going concern.

2.11. During the last visit on or about end of July 2023, the Applicant's Officer was once again threatened with regards to the Payment of dues of the Members of the Respondent Nos. 2 & 3. The said Officer of the Applicant then informed the members of the Respondent Nos. 2 & 3 that the due of the members of the Respondent Nos. 2 & 3 are already be paid by

the Respondent No. 1.

2.12. Due to this history of antisocial elements and threat of members of the Respondent Nos. 2 & 3 Contractors and Political interventions and the next planning of the visit of the Officer of Applicant will most assuredly be met again with same outcome. The Applicant sincerely wish to avoid the same. The Applicant and/or its Offcer are coordinating with various level in the government system and personally are doing everything to ensure the safety of its Officer and/or employees, the Applicant fear, however, that all the preparations may not be enough, but without official uniformed police presence. In the light of the above what is stated herein above, the Applicant humbly request the intervention of the Tribunal to pass necessary order and/or directions the concerned Police State Le. Dapoli Police Station to provide adequate police protection to the Officer and/or employees and/or professionals of the Applicant as and when required.

2.13. The Applicants have reliably learnt that the members of the Respondent Nos. 2 & 3 along with Contractors for their mala-fide intentions and ulterior motives and the reasons best known to them are threatening to put up a "Dharna" on 15th August 2023, it appear that despite the payment of the legitimate dues of the Respondent Nos. 2 & 3 by the Respondent No. 1, the members of the Respondent Nos. 2 & 3 are creating issues and hence the Applicant is facing difficulty to run the Shipyard

2.14. The Applicant submits that this Tribunal be pleased to pass necessary order and/or directions restraining the Collector. Zhilla Adhikar, Superintendent of Police, SDO & Tehsildar and other authority concerned with Dabhol Village not to entertain any such application and/or to grant any permission/s and/or support "Dharna" to be put up by the members of the Respondent Nos. 2 & 3 and/or Contractors along with Local Politicians on 15th August 2023 and/or thereafter.

# 3. The Respondent No. 2 has filed affidavit in reply stating that this Tribunal has become functus officio after sale of Dabhol Shipyard and can not exercise the jurisdiction in relation to the present application. It has also been stated that “Pertinently, even though the sale of the Dabhol Shipyard was executed as a going concern, most of the existing employees of the said Dabhol Shipyard were not retained by the Applicant and the Applicant only retained only a few existing employees of he said Dabhol Shipyard. It is further submitted that even the entire payment of the retained workmen/employees has not been made by the Applicant”.

3.1. The Respondent No. 2 has further stated that the present dispute being amongst the employer i.e., the owner of the said Dabhol Shipyard (the Applicant) and workmen of the Dabhol Shipyard (Respondent Nos. 2 & 3) lies in the realm of relevant labour laws and is in fact dealt by the Industrial Disputes Act, 1947 which primarily deals with industrial disputes amongst employees and workmen. Section 34(1) of the Industrial Disputes Act, 1947 expressly bars the jurisdiction of any Court to take cognizance of any offence punishable under the Industrial Disputes Act and the Disputes under that Act also includes disputes connected with non-employment of the workmen.

3.2. The Respondent No. 2 has pleaded that the grievance of the Applicant primarily emanates out of a letter dated 01st August, 2023 intimating the Respondent No. 2’s intention of holding protest / “dharna” against the actions of the Applicant and the remedy for the aforesaid cause of action lies squarely under the Industrial Disputes Act, 1947.

3.3. It is also pleaded that the Applicant after undertaking to keep operating the said Dabhol Shipyard as a going concern has started selling off the ship building equipment & expensive imported machinery one at a time. The said conduct of the Applicant is contrary to the terms of the Sale Certificate dated 10th May, 2023.

3.4. Since, the members of the Respondent No. 2 have already carried out a protest / “dharna” against the negligent management of the said Dabhol Shipyard, the reliefs sought in the present Application as such do not survive and cannot be granted by this Tribunal.

3.5. The case of the Respondent No. 2 is that the Respondent No. 1 i.e., the Liquidator of the said Dabhol Shipyard has cleared the dues of the workmen only pertaining to the period when the corporate debtor was under insolvency/liquidation i.e. from the year 2017-19. However, the dues of the workmen from the period of 2014-17 i.e. prior to the insolvency of the corporate debtor are still due and have not been cleared by the Corporate Debtor, the Resolution Professional or the Liquidator. The workmen of the Dabhol Shipyard are entitled to compensation for the period of 2014-17 and have been made to run from pillar to post to recover their dues from the Corporate Debtor. The Applicant having purchased the said Dabhol Shipyard as a going concern has subsumed the liabilities of the said Dabhol Shipyard from the Corporate Debtor, including subsequent payment of wages to the shipyard’s workmen. It has been emphasised that the Respondent No. 1 i.e., the Liquidator of the Corporate Debtor was only liable to clear the dues of the shipyard’s workmen during the period of insolvency & liquidation i.e. for the period of 2017 till the sale of the said Dabhol Shipyard to the Applicant. The Applicant having purchased the said Dabhol Shipyard on a “as is where is" basis is not only liable to pay the workmen’s dues after the purchase of the said Dabhol Shipyard but is also liable to clear the outstanding dues payable to the workmen for the period of 2014-17.

# 4. The Respondent No. 1, the Liquidator has filed the reply stating that “Since the sale of the Dabhol Shipyard stands concluded in favour of the Applicant as on date, the Application cannot even be said to be one “arising out of” or “in relation to” the insolvency resolution or liquidation proceedings of the Corporate Debtor, for it to be maintained under clause 5 of Section 60 of the Code. (See: Gujarat Urja Vikas Nigam Limited Vs. Amit Gupta and Others, (2021) 7 SCC 209)”. 

4.1. It is further stated that the grievance of the Applicant qua the Respondent No. 2 and 3 i.e. obstructions, hinderances, threats and violence caused by them, do not have any nexus with the liquidation process of the Corporate Debtor as it appears to be more of a workers’ and management related issue.

4.2. With respect to the claims of the Respondent Nos. 2 and 3, it is submitted that the employees and workmen of the Dabhol Shipyard had submitted their claims before the Liquidator as on the commencement of the Liquidation process i.e. on 14.1.2019, for an amount of INR 9,26,44,123/- and INR 8,82,75,180/- respectively. Following the procedure prescribed under the Code and the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations 2016 the Liquidator verified the said claims along with the supporting documents and admitted the claims of the employees to the tune of INR 8,72,69,337/- and of the workmen to the tune of INR 8,79,69,051/- basis information and documents provided by the employees/workmen and records available with the Corporate Debtor. The said claims are payable in accordance with Section 53 of the Code, based on the waterfall mechanism and proceeds realized from the sale of the liquidation estate of the Corporate Debtor.

4.3. All the claims for CIRP period have been paid and the claims amounting to INR 6,02,10,826/- and INR 5,65,21,351/- payable to employees and workmen are payable and shall be settled in accordance with Section 53 of the Code.

# 5. This Bench directed the Respondent No. 1, the Liquidator to state on affidavit “whether the employees were retained and attended the designated place of their employment during the period, and whether any attendance/register was maintained for making their presence”. The Liquidator filed Reply stating that “Consequent thereto and considering the significant reduction in the operations at the Dabhol shipyard of the Corporate Debtor, on 08.01.2021, the Liquidator entered into settlement letters with the employees and workmen of the Dabhol Shipyard subsequent to which, the Liquidator had engaged the employees and workmen on a monthly contract basis as per the requirement of the Corporate Debtor”. It is further stated that all steps taken by the Liquidator in relation to the engagement of employees and workmen and settlement of their dues has been in accordance with the directions of this Tribunal, provisions of the Insolvency & Bankruptcy Code, 2016 and the provisions of the IBBI (Liquidation Process Regulations), 2016. The Liquidator has also placed on record the list of workmen engaged by the Liquidator at the Dabhol Shipyard along with their attendance records from 14.01.2019.

# 6. Heard the learned Counsel and perused the material available on record.

6.1. During the hearing, this Bench had directed the Respondent No. 2 & 3 to desist from obstructing the activities of Applicant, which was duly complied with. As stated by the Respondent No. 2 also, we find that the protest / “dharna” has already taken place.

6.2. The bone of contention is non-payment of Pre-CIRP dues as admitted by the Liquidator also and this has given rise to obstructionist acts of the Respondent No. 2 & 3. The Respondent No. 1 is already seized of this matter and has not denied its obligation to settle the claims in accordance with the waterfall mechanism enshrined in Section 53 of the Code. Since, the dispute is arising from non-payment of Pre-CIRP dues of the Respondent No. 2 & 3 members, we are of considered opinion that this arises from the insolvency of the Corporate Debtor, hence vests the power in this Tribunal to decide on this issue and provide protection to the successful buyer from he obstruction caused due to non-payment of Pre- CIRP dues.

6.3. There is no dispute that Order of Liquidation is notice of discharge to all employees and workmen of a Corporate Debtor. As the Liquidator had proceeded to sell the units of Corporate Debtor as going concern in course of liquidation proceedings, he had arrived at settlement with workers/employees and engaged them afresh on monthly contract basis. Since, this arrangement was with the consent of members of Respondent No. 2 & 3, they cannot raise any grievance in so far as management of affairs of the auction unit to keep it as going concern is concerned.

6.4. It is trite law that the auction purchaser gets the assets on “as is where is” and “as is what is” basis and such assets have to be free from all obligations or encumbrances, unless otherwise made part of the bidding document. Accordingly, the liability to pay Pre-CIRP dues can not be fastened on the Applicant simply because the Dabhol Shipyard was purchased in auction on “as is where is” and “as is what is basis”. Accordingly, we hold that the members of Respondent No. 2 & 3 do not have any claims against the Applicant in so far Pre-CIRP dues are concerned and such dues shall be settled in accordance with provision contained in section 53 of the Code. Since, the Liquidator has not denied any liability on this account, we do not consider it appropriate to issue any direction to the Liquidator in this regard.

6.5. Thus, there remains no dispute in so far as payment of Pre- CIRP dues of members of Respondent No. 2 & 3 are concerned and the Applicant can not be made to suffer by such members. Accordingly, this Bench considers it appropriate to caution members of Respondent No. 2 & Respondent No. 3 to refrain from causing any obstruction or issuing any threat to any person/officer/employees/workers of the Applicant in so far as operations of the Dabhol Shipyard are concerned. The Government Authorities, including Gram Panchayat, Police and Administrative Authorities, shall ensure adequate protection to the Applicant in this regard.

# 7. In view of foregoing, the IA 3417 of 2023 is disposed of as partly allowed.

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DBS Bank Ltd. Singapore Vs. Ruchi Soya Industries Ltd. and Anr. - We wish to clarify that Section 53(1) is referred to in Section 30(2)(b)(ii) with the purpose and objective that the dissenting financial creditor is not denied the amount which is payable to it being equal to the amount of value of the security interest. The entire Section 53 is not made applicable.

 SCI (03.01.2024) in DBS Bank Ltd. Singapore Vs. Ruchi Soya Industries Ltd. and Anr. [Civil Appeal No. 9133 of 2019 with Civil Appeal No. 787 of 2020 ] held that;

• Section 30(2) refers only to the sum of money and nothing else, that is, it does not permit the dissenting financial creditor to enforce the security and sell the same. This would be counterproductive and may nullify the resolution plan. 

• What the dissenting financial creditor is entitled to is the payment, which should not be less than the amount/value of the security interest held by them. 

• The security interest gets converted from the asset to the value of the asset, which is to be paid in the form of money.

• 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. The “amount” to be paid to the dissenting financial creditor should be in accordance with Section 53(1) in the event of liquidation of the corporate debtor.

• In other words, in our opinion, the dissenting financial creditor is entitled to a minimum value in monetary terms equivalent to the value of the security interest.

• The dissenting financial creditor has to statutorily forgo and relinquish his security interest on the resolution plan being accepted, and his position is same and no different from that of a secured creditor who has voluntarily relinquished security and is to be paid under Section 53(1)(b)(ii) of the Code.

• We wish to clarify that Section 53(1) is referred to in Section 30(2)(b)(ii) with the purpose and objective that the dissenting financial creditor is not denied the amount which is payable to it being equal to the amount of value of the security interest. The entire Section 53 is not made applicable.

• The dissenting financial creditor cannot object to the resolution plan, but can object to the distribution of the proceeds under the resolution plan, when the proceeds are less than what the dissenting financial creditor would be entitled to in terms of Section 53(1) if the corporate debtor had gone into liquidation. This is the statutory option or choice given by law to the dissenting financial creditor. The option/choice should be respected.

• In view of the aforesaid discussion, and as we are taking a different view and ratio from India Resurgence ARC Private Limited (supra) on interpretation of Section 30(2)(b)(ii) of the IBC, we feel that it would be appropriate and proper if the question framed at the beginning of this judgment is referred to a larger Bench.

Blogger’s Comments; Prior to 16.08.2019 amendments in the Code, the concept of “value of the security interest of a secured creditor” was not there either in section 30 or section 53. The observations of the Hon’ble Supreme Court in the present case are precursors of importing  the concept of “value of the security interest of a secured creditor” into section 53. Let’s wait for the decision of the larger bench. This will change the entire ecosystem of distribution of funds in resolution plans (section 30) & in liquidation process (section 53), leading to bifurcation of creditors (FC’s , OC’s & other creditors)  into secured portion & unsecured portion on the basis of “value of security interest”, similar to provisions of the Code under section 110(4) [Part-III, Insolvency Resolution and Bankruptcy for Individuals and Partnership Firms], reading as under;

• # 110. Rights of secured creditors in relation to repayment plan. -

• XXXXX

• (4) In case a secured creditor participates in the voting on the repayment plan by  submitting an affidavit under sub-section (3), the secured and unsecured parts of the debt shall be treated as separate debts.

Excerpts of the order;

The issue that arises for consideration in the present appeals is:

• Whether Section 30(2)(b)(ii) of the Insolvency and Bankruptcy Code, 20161 , as amended in 2019, entitles the dissenting financial creditor to be paid the minimum value of its security interest?

# 2. Appellant – DBS Bank Limited Singapore had extended financial debt of around USD 50,000,000 (fifty million dollars only) or Rs. 243,00,00,000 (rupees two hundred forty three crore only) to M/s. Ruchi Soya Industries Limited2 , the corporate debtor.

# 3. The financial debt was secured by: (i) a sole and exclusive first charge over certain immovable and fixed assets of the Corporate Debtor in Kandla, Gujarat; and (ii) sole and exclusive first charge over assets of the Corporate Debtor in Baran, Rajasthan; Guna, Madhya Pradesh; Dalauda, Madhya Pradesh; Gadarwara, Madhya Pradesh; and a commercial office space at Nariman Point, Mumbai.

# 4. 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 Professional4 was appointed.

# 5. 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).

# 6. 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 admitted claims of the financial creditors.

# 7. On 12.04.2019, by a communication, the appellant informed the Committee of Creditors5 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. Emphasising the specific treatment of the exclusive and superior security, the appellant requested the CoC to take into account the liquidation value of such security while considering the distribution of proceeds and to make such distribution in a “fair and equitable” manner.

# 8. 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. However, in the meeting held on 23.04.2019, the CoC approved pari passu distribution of the resolution plan proceeds.

# 9. 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.

# 10. The resolution plan was filed for approval before the National Company Law Tribunal6 , Mumbai. Separately, the appellant challenged the distribution mechanism of the resolution plan proceeds by way of an application before the NCLT, Mumbai.

# 11. 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.

# 12. On 31.07.2019, the appellant challenged the dismissal of its application before the National Company Law Appellate Tribunal7 .

# 13. During pendency of the appeal, Section 6 of the Insolvency and Bankruptcy Code (Amendment) Act, 20198 , was notified by way of a gazette notification dated 16.08.2019. It amended Section 30(2)(b) of the Code. Amended Section 30(2)(b)(ii) of the Code provides that operational and dissenting financial creditors shall not be paid an amount lesser than the amount to be paid to creditors in the event of liquidation of the Corporate Debtor under Section 53(1) of the Code. Explanation 2 added thereby makes the amended Section 30(2)(b) applicable to pending proceedings. Section 30(4) was also amended to state the CoC shall take into account “the order of priority” amongst creditors as laid down in Section 53(1) of the Code.

# 14. 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.

# 15. The NCLT vide order dated 04.09.2019 finally approved the resolution plan, which was already provisionally approved vide order dated 24.07.2019.

# 16. 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.

# 17. The 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. By order dated 18.11.2019, the first appeal preferred by the appellant was dismissed. By the subsequent order dated 09.12.2019, the NCLAT dismissed the second appeal filed by the appellant.

# 18. 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 (rupees ninety nine crore seventy four lakh only), being the difference between the amount which the appellant would have received in terms of the amendments noticed above and the amount received by the appellant on pro rata distribution of proceeds, should be deposited in an escrow account. Accordingly, Rs. 99,74,00,000 (rupees ninety nine crore seventy four lakh only) had been set aside and kept in an escrow account.

# 19. The appellant, it should be stated, has made no claims against Patanjali Ayurvedic Limited.

# 20. 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). The admitted claim of the appellant is Rs. 242,96,00,000 (rupees two hundred forty two crore ninety six lakh only). Thus, the appellant, notwithstanding the amendments to Section 30 of the Code, has been deprived of its due share given its superior security assets. Equating the appellant with financial creditors having inferior security interest has resulted in unjust enrichment and windfall benefits to the dissimilarly placed creditors to the detriment of the appellant.

# 21. To appreciate the legal question, which requires an answer, we would like to reproduce Section 30(2) and Section 30(4) of the Code, with the amendments made vide the IBC (Amendment) Act, 2019, which for clarity have been highlighted in italics and bold. Relevant portions of the two sections read:

“30. Submission of resolution plan.—

                 xx                                                         xx                                            xx

(2) The resolution professional shall examine each resolution plan received by him to confirm that each resolution plan—

(a) provides for the payment of insolvency resolution process costs in a manner specified by the Board in priority to the payment of other debts of the corporate debtor;

(b) provides for the payment of debts of operational creditors in such manner as may be specified by the Board which shall not be less than—

(i) the amount to be paid to such creditors in the event of a liquidation of the corporate debtor under Section 53; or

(ii) the amount that would have been paid to such creditors, if the amount to be distributed under the resolution plan had been distributed in accordance with the order of priority in sub-section (1) of Section 53,

whichever is higher, and provides for the payment of debts of financial creditors, who do not vote in favour of the resolution plan, in such manner as may be specified by the Board, which shall not be less than the amount to be paid to such creditors in accordance with sub-section (1) of Section 53 in the event of a liquidation of the corporate debtor.

Explanation 1.—For the removal of doubts, it is hereby clarified that a distribution in accordance with the provisions of this clause shall be fair and equitable to such creditors.

Explanation 2.—For the purposes of this clause, it is hereby declared that on and from the date of commencement of the Insolvency and Bankruptcy Code (Amendment) Act, 2019, the provisions of this clause shall also apply to the corporate insolvency resolution process of a corporate debtor—

(i) where a resolution plan has not been approved or rejected by the Adjudicating Authority;

(ii) where an appeal has been preferred under Section 61 or Section 62 or such an appeal is not time barred under any provision of law for the time being in force; or

(iii) where a legal proceeding has been initiated in any court against the decision of the Adjudicating Authority in respect of a resolution plan;

(c) provides for the management of the affairs of the corporate debtor after approval of the resolution plan;

(d) the implementation and supervision of the resolution plan;

(e) does not contravene any of the provisions of the law for the time being in force;

(f) conforms to such other requirements as may be specified by the Board.

Explanation.—For the purposes of clause (e), if any approval of shareholders is required under the Companies Act, 2013 (18 of 2013) or any other law for the time being in force for the implementation of actions under the resolution plan, such approval shall be deemed to have been given and it shall not be a contravention of that Act or law.

xx                                                                                  xx                                                                                                 xx

(4) The committee of creditors may approve a resolution plan by a vote of not less than sixty-six per cent of voting share of the financial creditors, after considering its feasibility and viability the manner of distribution proposed, which may take into account the order of priority amongst creditors as laid down in sub-section (1) of Section 53, including the priority and value of the security interest of a secured creditor, and such other requirements as may be specified by the Board:

xx                                                                                  xx                                                                             xx

# 22. The first issue that arises for consideration in these appeals is whether the amendments made in the substantive portion of Section 30(2), in terms of Explanation 2 will be applicable when the first appeal was heard by the NCLAT. The Amendment Act was notified and came into effect on 16.08.2019. The appellant had preferred the first appeal before the NCLAT on 31.07.2019, which appeal was directed against the provisional approval order passed by the NCLT on 24.07.2019. In our opinion, Explanation 2(ii) clearly states that an appeal preferred under Section 61 or 62, when it is not barred by time under any provision of law, shall be heard and decided after considering the amended Section 30(2)(b) under the Amendment Act. In fact, Explanation 2(i) states that the amended clause shall “also” apply to the CIRP of the corporate debtor where a resolution plan has not been approved or rejected by the adjudicating authority. Explanation 2(iii) states that the amended Section 30(2)(b) shall “also” apply where legal proceedings have been initiated in any court against the decision of the adjudicating authority. Clauses (i), (ii) and (iii) of Explanation 2 reflect the wide expanse and width of the legislative intent viz. the application of the Amendment Act, whether proceedings are pending before the adjudicating authority, the appellate authority, or before any court in a proceeding against an order of the adjudicating authority in respect of a resolution plan. Only when the resolution plan, as approved, has attained finality as no proceedings are pending, that the amendments will not apply to re-write the settled matter.

# 23. A three Judge Bench of this Court in Committee of Creditors of Essar Steel India Limited v. Satish Kumar Gupta & Ors.9, in paragraph 130, has observed that Explanation 2 applies to the substituted Section 30(2)(b) to pending proceedings either at the level of the adjudicating authority, appellate authority or in a writ or civil court. Referring to several decisions, it is observed that no vested right inheres in any resolution applicant who has plans approved under the Code. Further, an appellate proceeding is a continuation of the original proceeding. A change in law can always be applied to original or appellate proceedings. Thus, Explanation 2 is constitutionally valid and despite having retrospective operation, it does not impair vested rights.

# 24. We must also take note of the second submission of the appellant in this regard relying upon Explanation 2(i), inter alia, on the ground that the final approval to the resolution plan by the NCLT was vide order dated 04.09.2019, which is after the notification of the Amendment Act on 16.08.2019. The first order provisionally/ conditionally approving the resolution plan was dated 24.07.2019 and hence, the effect of the Amendment Act could not have been considered and applied by the NCLT. There is merit in the contention of the appellant, but we need not firmly decide this issue, for we are of the opinion 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.

# 25. The second question relates to the interpretation of Section 30(2)(b)(ii) of the Code. As we read Section 30(2)(b)(ii), the dissenting financial creditor is entitled to payment, which should not be less than the amount payable under Section 53(1), in the event of the liquidation of the corporate debtor. The provision recognises that all financial creditors need not be similarly situated. Secured financial creditors may have distinct sets of securities. There are a number of decisions of this Court, viz. Committee of Creditors of Essar Steel India Limited (supra), Swiss Ribbons Private Limited and Another v. Union of India and Others10, and Vallal RCK v. Siva Industries and Holdings Limited and Others11, which have held that the commercial wisdom of the CoC must be respected. Therefore, the resolution plan accepted by the requisite creditors/members of the CoC upon voting, is enforceable and binding on all creditors. The CoC can decide the manner of distribution of resolution proceeds amongst creditors and others, but Section 30(2)(b) protects the dissenting financial creditor and operational creditors by ensuring that they are paid a minimum amount that is not lesser than their entitlement upon the liquidation of the corporate debtor.

# 26. The Code had been enacted to balance the interests of various stakeholders, inter alia, by facilitating the resolution of insolvency, promoting investment, maximising the value of assets, and increasing the availability of credit. Secured credit is important for commerce as it reduces credit risk and carries lower interest due to lower loss value in the event of failure. 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.

# 27. The order passed by the NCLAT dated 18.11.2019 noticing the amendments states that Section 30(4) had not been given retrospective effect but is prospective in nature. While it was open to the CoC to follow the amended Section 30(4), it was not mandatory to follow the same. A 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.

# 28. In India Resurgence ARC Private Limited v. Amit Metaliks Limited & Another.12, a two Judge Bench of this Court has referred to a judgment by a three Judge Bench of this Court in Jaypee Kensington Boulevard Apartments Welfare Association & Others. v. NBCC (India) Limited & Others.13, to observe and hold:

“18. In the case of Jaypee Kensington (supra), the proposal in the resolution plan was to the effect that if the dissenting financial creditors would be entitled to some amount in the nature of liquidation value in terms of Sections 30 and 53 of IBC read with Regulation 38 of the CIRP Regulations, they would be provided such liquidation value in the form of proportionate share in the equity of a special purpose vehicle proposed to be set up and with transfer of certain land parcels belonging to corporate debtor. Such method of meeting with the liability towards dissenting financial creditors in the resolution plan was disapproved by the Adjudicating Authority; and this part of the order of the Adjudicating Authority was upheld by this Court with the finding that the proposal in the resolution plan was not in accord with the requirement of ‘payment’ as envisaged by clause (b) of Section 30(2) of the Code. In that context, this Court held that such action of ‘payment’ could only be by handing over the quantum of money or allowing the recovery of such money by enforcement of security interest, as per the entitlement of a dissenting financial creditor. This Court further made it clear that 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. This Court clarified that 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. This Court, inter alia, observed and held as under:

“121.1. Therefore, when, for the purpose of discharge of obligation mentioned in the second part of clause (b) of Section 30(2) of the Code, the dissenting financial creditors are to be “paid” an “amount” quantified in terms of the “proceeds” of assets receivable under Section 53 of the Code; and the “amount payable” is to be “paid” in priority over their assenting counterparts, the statute is referring only to the sum of money and not anything else. In the frame and purport of the provision and also the scheme of the Code, the expression “payment” is clearly descriptive of the action of discharge of obligation and at the same time, is also prescriptive of the mode of undertaking such an action. And, that action could only be of handing over the quantum of money, or allowing the recovery of such money by enforcement of security interest, as per the entitlement of the dissenting financial creditor.

121.2. We would hasten to observe that in case a dissenting financial creditor is a secured creditor and a valid security interest is created in his favour and is existing, the entitlement of such a dissenting financial creditor to receive the “amount payable” could also 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. Obviously, 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….”

3 29. Thereafter, this Court in India Resurgence ARC Private Limited (supra) has observed:

“19. In Jaypee Kensington (supra), this Court repeatedly made it clear 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. It is but obvious that his dealing with the security interest, if occasion so arise, would be conditioned by the extent of value receivable by him.

20. The extent of value receivable by the appellant is distinctly given out in the resolution plan i.e., a sum of INR 2.026 crores which is in the same proportion and percentage as provided to the other secured financial creditors with reference to their respective admitted claims. Repeated reference on behalf of the appellant to the value of security at about INR 12 crores is wholly inapt and is rather ill-conceived.

21. 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 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.”

# 30. Our attention is also drawn to paragraph 17 and 22 of India Resurgence ARC Private Limited (supra), wherein after elucidating on the ratio in Jaypee Kensington (supra), the Bench has observed:

“17. Thus, what 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 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.

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22. It needs hardly any emphasis that 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. We may profitably refer to the relevant observations in this regard by this Court in Essar Steel as follows:

“85. 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 incentivised 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.””

# 31. We believe that there is a contradiction in the reasoning given in the judgment of this Court in India Resurgence ARC Private Limited (supra), which is in discord with the ratio decidendi of the decisions of the three Judge Bench in Committee of Creditors of Essar Steel India Limited (supra) and Jaypee Kensington (supra).

# 32. In Committee of Creditors of Essar Steel India Limited (supra), this Court had referred to the UNCITRAL Legislative Guide on the treatment of dissenting creditors to observe that it is essential to provide a way of imposing a plan agreed upon by a majority of a class upon the dissenting minority to increase the chances of success of the reorganisation. However, it is also necessary depending upon the mechanism that is chosen for voting on the plan and whether the creditors vote in class, to consider whether the plan can be made binding upon dissenting classes of creditors and other affected parties. To the extent that the plan can be approved and enforced upon the dissenting parties, there is a need to ensure that the plan provides appropriate protection for the dissenting parties and, in particular, the rights may not be unfairly affected. Thereupon, the UNCITRAL Legislative Guide states:

“…The law might provide, for example, that dissenting creditors cannot be bound unless assured of certain treatment. As a general principle, that treatment might be that the creditors will receive at least as much under the plan as they would have received in liquidation proceedings. If the creditors are secured, the treatment required may be that the creditor receives payment of the value of its security interest, while in the case of unsecured creditors it may be that any junior interests, including equity holders, receive nothing…”

# 33. In our opinion, 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.

# 34. In paragraph 128 in the case of Committee of Creditors of Essar Steel India Limited (supra), it has been clearly held:

“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 operational creditors something more than was given earlier as it is the higher of the figures mentioned in sub-clauses (i) and (ii) of sub-clause (b) that is now to be paid as a minimum amount to operational creditors. The same goes for the latter part of sub-clause (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 operational creditors and dissentient financial creditors as they are now to be paid a certain minimum amount, the minimum in the case of 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 cram down 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.”

# 35. The reasoning and the ratio in Jaypee Kensington (supra) is also the same:

“164.2. We would hasten to observe that in case a dissenting financial creditor is a secured creditor and a valid security interest is created in his favour and is existing, the entitlement of such a dissenting financial creditor to receive the “amount payable” could also 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. Obviously, 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.”

# 36. We have reservation on portions of the view expressed in paragraphs 17, 21 and 22 in the judgment of India Resurgence ARC Private Limited (supra). Paragraph 17 is respectfully correct in its observations when it refers to the provisions of Section 30(4) and that the voting is essentially a matter which relates to commercial wisdom of the CoC. The observation that a dissenting secured creditor cannot suggest that a higher amount be paid to it is also correct. However, this does not affect the right of a dissenting secured creditor to get payment equal to the value of the security interest in terms of Section 30(2)(b)(ii) of the Code. Paragraph 21 in India Resurgence ARC Private Limited (supra) again in our respectful view is partially correct. 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. Paragraph 22 refers to the Committee of Creditors of Essar Steel (supra), which we have already quoted and is apposite to the view expressed by us. The reasoning given in the earlier portion of paragraph 22 in our respectful opinion is in conflict with the ratio in Committee of Creditors of Essar Steel India Limited (supra) as it does not take into account the legal effect of Section 30(2)(b)(ii) of the Code. While it is important to maximise the value of the assets of the corporate debtor and prevent liquidation, the rights of operational creditors or dissenting financial creditors also have to be protected as stipulated in law.

# 37. In Jaypee Kensington (supra), it has been held that the dissenting financial creditor, if the occasion arises, is entitled to receive the extent of value in money equal to the security interest held by him. It would not be proper to read Jaypee Kensington (supra), as laying down that the dissenting financial creditor would be entitled to the extent of amounts receivable by him in the resolution plan. This would undo the very object and purpose of the amendment. It would make the portion of Section 30(2)(b)(ii) specifying the amount to be paid to such creditor in accordance with Section 53(1), redundant and meaningless.

# 38. Our reasoning finds resonance in the reasoning given in Jaypee Kensington (supra), which states that for the purpose of discharge of obligation mentioned in the second part of Section 30(2)(b) of the Code, the dissenting financial creditors are to be paid an amount quantified in terms of the proceeds of assets receivable under Section 53 of the Code. This amount payable is to be paid on priority over the dissenting counterparts. However, Section 30(2) refers only to the sum of money and nothing else, that is, it does not permit the dissenting financial creditor to enforce the security and sell the same. This would be counterproductive and may nullify the resolution plan. What the dissenting financial creditor is entitled to is the payment, which should not be less than the amount/value of the security interest held by them. The security interest gets converted from the asset to the value of the asset, which is to be paid in the form of money. This is clear from the relevant portions of paragraphs 164.1, 164.2, 166.4, and 167 in Jaypee Kensington (supra), which read as under:

• “164.1. Therefore, when, for the purpose of discharge of obligation mentioned in the second part of clause (b) of Section 30(2) of the Code, the dissenting financial creditors are to be “paid” an “amount” quantified in terms of the “proceeds” of assets receivable under Section 53 of the Code; and the “amount payable” is to be “paid” in priority over their assenting counterparts, the statute is referring only to the sum of money and not anything else. In the frame and purport of the provision and also the scheme of the Code, the expression “payment” is clearly descriptive of the action of discharge of obligation and at the same time, is also prescriptive of the mode of undertaking such an action. And, that action could only be of handing over the quantum of money, or allowing the recovery of such money by enforcement of security interest, as per the entitlement of the dissenting financial creditor.

• 164.2. We would hasten to observe that in case a dissenting financial creditor is a secured creditor and a valid security interest is created in his favour and is existing, the entitlement of such a dissenting financial creditor to receive the “amount payable” could also 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. Obviously, 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 [ Though it is obvious, but is clarified to avoid any ambiguity, that the “security interest” referred herein for the purpose of money recovery by dissenting financial creditor would only be such security interest which is relatable to the “financial debt” and not to any other debt or claim.] . In any case, that is, whether by direct payment in cash or by allowing recovery of amount via the mode of enforcement of security interest, the dissenting financial creditor is entitled to receive the “amount payable” in monetary terms and not in any other term

• 166.4. The suggestion about prejudice being caused to the assenting financial creditors by making payment to the dissenting one has several shortcomings. As noticeable, in the scheme of IBC, a resolution plan is taken as approved, only when voted in favour by a majority of not less than 66% of the voting share of CoC. Obviously, the dissenting sect stands at 34% or less of the voting share of CoC. Even when the financial creditors having a say of not less than 2/3rd in the Committee of Creditors choose to sail with the resolution plan, the law provides a right to the remainder (who would be having not more than 34% of voting share) not to take this voyage but to disembark, while seeking payment of their outstanding dues. Even this disembarkment does not guarantee them the time value for money of the entire investment in the corporate debtor; what they get is only the liquidation value in terms of Section 53 of the Code. Of course, in the scheme of CIRP under the Code, the dissenting financial creditors get, whatever is available to them, in priority over their assenting counterparts. In the given scheme of the statutory provisions, there is no scope for comparing the treatment to be assigned to these two divergent sects of financial creditors. The submissions made on behalf of assenting financial creditors cannot be accepted.

• 167. To sum up, in our view, for a proper and meaningful implementation of the approved resolution plan, the payment as envisaged by the second part of clause (b) of sub-section (2) of Section 30 could only be payment in terms of money and the financial creditor who chooses to quit the corporate debtor by not putting his voting share in favour of the approval of the proposed plan of resolution (i.e. by dissenting), cannot be forced to yet remain attached to the corporate debtor by way of provisions in the nature of equities or securities. In the true operation of the provision contained in the second part of sub-clause (ii) of clause (b) of sub-section (2) of Section 30 (read with Section 53), in our view, the expression “payment” only refers to the payment of money and not anything of its equivalent in the nature of barter; and a provision in that regard is required to be made in the resolution plan whether in terms of direct money or in terms of money recovery with enforcement of security interest, of course, in accordance with the other provisions concerning the order of priority as also fair and equitable distribution. We are not commenting on the scenario if the dissenting financial creditor himself chooses to accept any other method of discharge of its payment obligation but as per the requirements of law, the resolution plan ought to carry the provision as aforesaid.”

# 39. Similar view has been taken by a two Judge Bench of this Court in Vistra ITCL (India) Limited & Ors. v. Dinkar Venkatasubramanian & Anr.14, wherein it was observed in paragraphs 34, 41.2 and 42 as under:

“34. The amendment introduced by Act 26 of 2019 ensures that the operational creditors under the resolution plan should be paid the amount equivalent to the amount which they would have been entitled to, in the event of liquidation of the corporate debtor under Section 53 of the Code. In other words, the amount payable under the resolution plan to the operational creditors should not be less than the amount payable to them under Section 53 of the Code, in the event of liquidation of the corporate debtor. The amended provision also provides that the financial creditors who have not voted in favour of the resolution plan shall be paid not less than the amount which would be paid to them in accordance with sub-section (1) to Section 53 of the Code, in the event of liquidation of the corporate debtor. Explanation (1) to clause (b) of Section 30(2) of the Code, for the removal of doubts, states and clarifies that the distribution in accordance with this clause shall be fair and equitable to such creditors.

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41.2. The second option is to treat Appellant 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 Appellant 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 21-A of the Liquidation Process Regulations. The second recourse available, would be almost equivalent in monetary terms for Appellant 1-Vistra, who is treated as a secured creditor and is held entitled to all rights and obligations as applicable to a secured creditor under Sections 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.

42. We wish to clarify that the directions given by us would not be a ground for the successful resolution applicant — DVI to withdraw the resolution plan which has already been approved by Nclat and by us. The reason is simple. Any resolution plan must meet with the requirements/provisions of the Code and any provisions of law for the time being in force. What we have directed and the option given by us ensures that the resolution plan meets the mandate of the Code and does not violate the rights given to the secured creditor, who cannot be treated as worse off/inferior in its claim and rights viz an operational creditor or a dissenting financial creditor.”

# 40. One of the contentions raised by the respondent no. 2 – the CoC is that Section 30(2)(b)(ii) refers only to Section 53 of the Code and not to Section 52. We find it difficult to accept the said submission to read down Section 30(2)(b)(ii) of the Code. Reference to Section 53 of the Code in Section 30(2)(b)(ii) is made with a specific purpose and objective and accordingly, we have to understand and give a cogent and effective meaning to the words to effectuate the intent. 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. The “amount” to be paid to the dissenting financial creditor should be in accordance with Section 53(1) in the event of liquidation of the corporate debtor. In other words, in our opinion, the dissenting financial creditor is entitled to a minimum value in monetary terms equivalent to the value of the security interest.

# 41. The 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.

# 42. Apart from the reasons stated above, a dissenting financial creditor, as held in Jaypee Kensington (supra) is only entitled to the monetary value of the assets. The dissenting financial creditor loses the security interest, that is, it relinquishes the security interest. Dissenting financial creditor, therefore, cannot enforce the security interest. It is necessary to clearly state this position, as in case a dissenting financial creditor enforces the security interest, the resolution plan itself may fail and become unworkable. The dissenting financial creditor has to statutorily forgo and relinquish his security interest on the resolution plan being accepted, and his position is same and no different from that of a secured creditor who has voluntarily relinquished security and is to be paid under Section 53(1)(b)(ii) of the Code.

# 43. The reasoning also takes care of the argument that the Explanation to Section 53 incorporates the principle of pari passu distribution into Section 53(1) with each class of creditors mentioned therein. We wish to clarify that Section 53(1) is referred to in Section 30(2)(b)(ii) with the purpose and objective that the dissenting financial creditor is not denied the amount which is payable to it being equal to the amount of value of the security interest. The entire Section 53 is not made applicable.

# 44. We would, for the above reasons, reject the submission on behalf of the respondents that Section 30(2)(b)(ii) is unworkable because it involves deeming fiction relating to liquidation, which is inapplicable during the CIRP period. This would be contrary to the legislative intent and is unacceptable.

# 45. Respondent no. 2 – CoC has submitted that the appellant has dissented because it did not approve the manner of distribution of the proceeds under the resolution plan. The appellant did not dispute the resolution plan itself. Accordingly, Section 30(2)(b)(ii) is not applicable. The argument is fallacious and must be rejected. Section 30(2)(b)(ii) relates to the proportion of the proceeds mentioned in the resolution plan or the amount which the dissenting financial creditor would be entitled to in terms of the waterfall mechanism provided in Section 53(1), if the corporate debtor goes into liquidation. The dissenting financial creditor does not have any say when the resolution plan is approved by a two-third majority of the CoC. The resolution plan will be accepted when approved by the specified majority in the CoC. The dissenting financial creditor cannot object to the resolution plan, but can object to the distribution of the proceeds under the resolution plan, when the proceeds are less than what the dissenting financial creditor would be entitled to in terms of Section 53(1) if the corporate debtor had gone into liquidation. This is the statutory option or choice given by law to the dissenting financial creditor. The option/choice should be respected.

# 46. Respondent no. 2 – CoC had referred to the objections referred to in the CoC meetings dated 15.04.2019 and 23.04.2019. We are of the view that the objections raised by the appellant relate to the distribution of the proceeds in terms of the liquidation plan. According to them, they were entitled to money of value not less than the amount that they would have received under Section 53(1) of the Code.

# 47. It is also argued that the NCLAT had rejected the first appeal on the ground that the appellant had only challenged the distribution of the pay-out under the plan inter se the financial creditors of the corporate debtor and not the resolution plan. Accordingly, the amendment to Section 30(2)(b) vide the Amendment Act of 2019 was not applicable. We have already rejected this argument, for the reasons set out above. In our opinion, the contention that the appellant is not the dissenting financial creditor is to be rejected.

# 48. The contention on behalf of the respondent that there is conflict between sub-section (4), as amended in 2019, and the amended clause (b) to sub-section (2) to Section 30 of the Code does not merit a different ratio and conclusion. Section 30(4) states that the CoC may approve the resolution plan by a vote not less than 66% of the voting share of the financial creditor. It states that the CoC shall consider the feasibility and viability, the manner of distribution proposed, which may take into account the order of priority amongst creditors under sub-section (1) to Section 53, including the priority and value of the security interest of the secured creditors, and other requirements as may be specified by the Board. These are the aspects that the CoC has to consider. It is not necessary for the CoC to provide each assenting party with liquidation value. However, a secured creditor not satisfied with the proposed payout can vote against the resolution plan or the distribution of proceeds, in which case it is entitled to full liquidation value of the security payable in terms of Section 53(1) on liquidation of the corporate debtor. The conflict with sub-clause (ii) to clause (b) to sub-section (2) to Section 30 does not arise as it relates to the minimum payment which is to be made to an operational creditor or a dissenting financial creditor. A dissenting financial creditor does not vote in favour of the scheme. Operational creditors do not have the right to vote.

# 49. In view of the aforesaid discussion, and as we are taking a different view and ratio from India Resurgence ARC Private Limited (supra) on interpretation of Section 30(2)(b)(ii) of the IBC, we feel that it would be appropriate and proper if the question framed at the beginning of this judgment is referred to a larger Bench. The matter be, accordingly placed before the Hon’ble the Chief Justice for appropriate orders.

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