Dissenting Financial Creditor only entitled to Liquidation Value of Secured Interest u/s  30(2)(b) of IBC: NCLAT [Read Order]

The New Delhi bench of the National Company Law Appellate Tribunal ( NCLAT ) has held that as per Section 30(2)(b) of the Insolvency and Bankruptcy Code, 2016, a dissenting financial creditor is only entitled to the liquidation value of its secured interest, not the total liquidation value of the Corporate Debtor. The Tribunal held that it cannot be interfered with unless similarly situated creditors are denied fair and equitable treatment.

Become PF & ESIC Pro: Basic to Advance Course - Enroll Today

Merina Commotrade Pvt. Ltd., the Appellant , a secured financial creditor dissented with the resolution plan filed by the Resolution Professional ( RP ) of Shubhkamna Buildtech Pvt. Ltd. , the Corporate Debtor. The resolution plan was approved with an 87.6% majority vote from the CoC. An application under section 9 of the Code was admitted against the Corporate Debtor on 26.11.2018.

The Appellant filed the objection as dissenting financial creditor. It was objected that the liquidation value of Rs. 82.66 Cr. of the Corporate Debtor as reported by the RP is erroneous and should be rejected; and the amount of Rs. 79 lakh offered to appellant was wrong. The liquidation value to which appellant is entitled is more than Rs. 1.38 Cr.

The Adjudicating Authority in the impugned order held that the valuation was conducted in compliance with the provisions of the Code and Regulation 35A of CIRP Regulations. It was held that “as per Section 30(2)(b) of the Code, the liquidation value required to be paid to the financial creditor is only qua the secured interest of the financial creditor and not qua the total liquidation value of the Corporate Debtor”.

Become PF & ESIC Pro: Basic to Advance Course - Enroll Today

The Appellant alleged the wrongful allocation of Rs. 79 lakhs as the liquidation value on the basis of the security interest held by the Appellant . It was contended that the Adjudicating Authority erred in holding that as per Section 30(2)(b) of the Code, the liquidation value required to be paid to a financial creditor is only qua the secured interest of the financial creditor and not qua the total liquidation value of the Corporate Debtor.

The respondent argued that the secured financial creditor cannot insist on payment of the entire dues of the security as per its security interest in the event of approval of resolution plan. Reliance was placed upon Paridhi Finvest Pvt. Ltd. vs. Value Infratech Buyers Association & Anr., which held that the security holder cannot insist upon payment of amount as per security interest when the Corporate Debtor is resolved through a resolution plan.

As per Section 30(2)(b) of the Code, the financial creditor who does not vote in favour of the resolution plan is entitled to payment of debt, which shall not be less than the amount to be paid to such creditor in terms of Section 53(1) of the Code. The Adjudicating Authority is not empowered to look into the question of valuation of the assets of the Corporate Debtor. Reliance was placed upon Ramkrishna Forgins Limited vs. Ravindra Loonkar, RP of Acil Limited & Anr., where it has been observed that there is no scope for interference with the commercial aspects of the decision of the CoC, and therefore, there is no scope for substituting any commercial term of the resolution plan approved by the CoC.

Become PF & ESIC Pro: Basic to Advance Course - Enroll Today

The Tribunal viewed that the dissenting creditor had submitted that in respect of Section 30(4) of the Code, the CoC could not have approved the resolution plan which failed to consider the priority and value of security interest of the creditors while deciding the manner of distribution to each creditor. The Supreme Court dismissed the appeal and emphasized that the commercial wisdom of the CoC should not be interfered with unless creditors within a class were denied equitable treatment.

The Coram comprising Justice Rakesh Kumar Jain ( Judicial Member ) and Mr. Indevar Pandey ( Technical Member ) observed that the question whether section 30(2)(b)(ii) entitles the dissenting financial creditor to be paid the minimum value of its security interest, has been referred to a larger bench of the Supreme Court in DBS Bank Ltd. Vs. Ruchi Soya Industries Ltd. & Anr., (2024) andl dismissed the appeal.

To Read the full text of the Order CLICK HERE

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates