The Supreme Court ruled that the Resolution Plan approved under the Insolvency and Bankruptcy Code (IBC) cannot be challenged by Secured Creditors on grounds of Higher Amount payable on Security Interest.
The appellant company, India Resurgence Arc Pvt. Ltd. is said to be the assignee of the rights, title and interest carried by Religare Finvest Limited as secured financial creditor of the corporate debtor, having 3.94% of voting share in the Committee of Creditors.
The resolution plan, as approved by the vast majority of voting share in the CoC, was submitted for approval by the resolution professional to the Adjudicating Authority. The Adjudicating Authority examined, inter alia, the salient features of resolution plan, particularly those concerning financial proposals; and found the plan to be feasible and viable with judicious distribution of financial bids by CoC to the stakeholders according to their entitlements as also being compliant of all the mandatory requirements.
It was contended on behalf of the appellant, in its capacity as a dissenting financial creditor, that the approved resolution plan failed the test of being ‘feasible and viable’ inasmuch as the value of the secured asset, on which security interest was created by the corporate debtor in its favour, was not taken into consideration. It was contended by the appellant that after the amendment to sub-section (4) of Section 30 of IBC, which came into effect from 16.08.2019, the CoC was to ensure that the manner of distribution takes into account the order of priority among the creditors as also the priority and value of the security interest of a secured creditor; and the resolution applicant and the CoC having failed to consider the existing security interest in its favour, approval of the Adjudicating Authority was not in accordance with law.
The appellant further contended that 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 even though the legislature in its wisdom has amended Section 30(4) of the Code, requiring the CoC to take into account the order of priority amongst creditors as laid down in Section 53(1) of the Code, including the priority and value of the security interest of a secured creditor.
The division bench of Justice Vineet Saran and Justice Dinesh Maheshwari said that 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.
The court said that 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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