Dissenting Secured Creditor Can't Be Treated Higher Than Other Creditors U/S 53 Just Because They Enjoy Security Interest: NCLT Kolkata

Background Facts

ICICI Bank Limited (“Applicant”) is a secured Financial Creditor of BKM Industries Limited (“Corporate Debtor”). Corporate Insolvency Resolution Process (“CIRP”) was initiated against the Corporate Debtor and the Applicant submitted its claim which was admitted.

It was submitted that the Applicant has first pari passu charge over certain movable and immovable properties of the Corporate Debtor as security for outstanding dues. However, the Applicants alleged that they have been treated at par with other creditors and their interest as a dissenting Creditor having a security interest has not been taken into consideration while determining the calculation methodology of their proportional share. It was submitted that the Resolution Plan prejudices the Applicant as they will receive far lesser value of proceeds than otherwise entitled to due to their treatment at par with other creditors. Further, it was submitted that there are no provisions under IBC which abrogate security interest during insolvency resolution, thus its principles are governed by Transfer of Property Act, 1882 under which the claim of first charge holder shall prevail over the claim of the second charge holder. The Applicants further alleged that there would be no incentive for a Financial Creditor to opt for resolution if the priority of a secured creditor having first charge as its security interest is ignored.

On the contrary, It was submitted by the Respondent Resolution Professional (“RP”) that the Resolution Plan was approved by 78.79% of the Committee of Creditors (“CoC”) in their commercial wisdom and the Applicant is a dissenting Financial Creditor. It was submitted that the contention regarding the security interest in favor of the Applicants being taken away by the Resolution Plan is flawed in light of Regulation 37(1)(d) of CIRP Regulations, 2016 under which a Resolution Plan can include satisfaction or modification of any security interest. It was alleged that the Applicant has disputed the methodology of computation of its proportional share of the Liquidation Value receivable under section 30(2)(b) of IBC read with section 53(1)(b)(ii) of IBC, however, section 30(2)(b) r/w section 53(1) only presupposes a notional relinquishment of security interest to the liquidation estate as per section 52(1)(a) of IBC. Section 30(2)(b) does not concern any value that could notionally be realized by the Applicant if it were to proceed under section 52(1)(b). Any notional realization by the Applicant as per section 52(1)(b) of IBC is not relevant for determining entitlement of a dissenting Financial Creditor u/s 30(2)(b) of IBC. It was further argued that priority of charges is irrelevant for determining the payout to secured creditors under section 53(1) of IBC.

Observations of the Tribunal

The Tribunal observed that a creditor cannot be treated as higher than other creditors who have financed the Corporate Debtor just because it enjoys the protection of security interest. These other creditors don’t not enjoy the protection of a security interest and thus run the risk of not getting paid their dues from realization of security. If such creditors are treated differently, then all secured creditors would dissent in the CoC. This will not lead to maximization of value of the Corporate Debtor and will defeat the very purpose of resolution under IBC.

Reliance was placed by the Tribunal on the Hon’ble Supreme Court judgement in India Resurgence ARC Private v. Amit Metaliks Limited and Another 2021 SCC Online SC 409 wherein it was remarked that if a dissenting secured creditor is paid a higher amount with reference to the value of security interest, then more CIRP processes will lead to liquidation rather than resolution, with every secured financial creditor opting to stand on dissent.

With the aforesaid observations, the Tribunal rejected the prayer of the applicant and refrained from interfering with the commercial wisdom of the CoC.

Case: ICICI Bank Limited Vs Mr. Pratim Bayal (Resolution Professional)& Anr in matter of Trimurti Associates Private Limited Vs BKM Industries Limited

Case No. :IA. (IB) No. 471/KB/2022 In C.P. (IB) No. 2078/KB/2019

Counsels for the Applicant: Mr. Ratnanko Banerji, Ms. Pooja Chakrabarti, Ms. Kiran Sharma

Counsel for the Respondent :Mr. Rishav Banerjee, Mr. A.K. Awasthi, Mr. Rajarshi Banerjee

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