Dissenting Financial Creditor Only Entitled To Liquidation Value Of Secured Interest U/S 30(2)(b) Of IBC, Commercial Wisdom Of CoC Sacrosanct: NCLAT

The NCLAT, New Delhi bench of Justice Rakesh Kumar Jain (Judicial Member) and Mr. Indevar Pandey (Technical Member) has affirmed 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 reiterated that the 'commercial wisdom' of the Committee of Creditors (CoC) is paramount and cannot be interfered with unless similarly situated creditors are denied fair and equitable treatment. Brief Facts: The Appellant (a secured financial creditor) dissented with the resolution plan filed by the Resolution Professional (RP) of Shubhkamna Buildtech Pvt. Ltd. (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. In the application filed by RP for approval of the resolution plan, the Appellant filed the objection as dissenting financial creditor. Two objections were raised, namely, (i) 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 (ii) 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 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”. The grievance of the Appellant in the appeal was the wrongful allocation of Rs. 79 lakhs as the liquidation value on the basis of the security interest held by the Appellant and not in proportion to Appellant's admitted claim, and that the liquidation value of the Corporate Debtor wrongfully diminished by the registered valuers from Rs. 166.54 Cr. to a meagre Rs. 82.66 Cr. on the instructions of the RP. Contentions: Counsel for the Appellant submitted that: Its claim for secured financial debt of Rs. 10.21 Cr. was admitted fully. 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. Counsel for the Respondent submitted 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. Reliance was also placed upon India Resurgence ARC Pvt. Ltd. vs. M/s Amit Metaliks Limited & Anr., wherein it was held that “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”. 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 CoC; and a dissenting secured creditor cannot suggest a higher amount to be paid to it w.r.t. the value of the security interest. Reliance was further placed upon ICICI Bank Limited vs. BKM Industries Limited, which held that there is no scope for distribution of assets among financial creditors as per security interest. The same was reiterated in Union Bank of India vs. Resolution Professional of Kudos Chemie Ltd. & ors.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. The commercial wisdom of the CoC is paramount and sacrosanct. Observations: The Tribunal, in addressing the grievance of the Appellant, referred to the decision of the Supreme Court in Amit Metaliks, where a ...

Dissenting Financial Creditor Only Entitled To Liquidation Value Of Secured Interest U/S 30(2)(b) Of IBC, Commercial Wisdom Of CoC Sacrosanct: NCLAT

Tazeen Ahmed

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