(REPORTABLE) IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL NO. 4242 OF 2019

MAHARASTHRA SEAMLESS LIMITED ...APPELLANT

VERSUS

PADMANABHAN VENKATESH & ORS. ...RESPONDENTS

  WITH

CIVIL APPEAL NOS. 4967-4968 OF 2019

J U D G M E N T

ANIRUDDHA BOSE, J.  

These proceedings arise out of Corporate Insolvency Resolution

Process (CIRP) involving United Seamless Tubulaar Private Limited,

the  corporate  debtor.  The  successful  Resolution  Applicant,

Maharashtra Seamless Ltd. (MSL) is the appellant in C.A. No. 4242

of 2019. The total debt of the corporate debtor was Rs. 1897 crores,

out  of  which  Rs.1652  crores  comprised  of  term  loans  from  two

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entities of Deutsche Bank.  These are DB International (Asia) Limited

and Deutsche Bank AG, Singapore Branch. There was also debt on

account of working capital borrowing of Rs. 245 crores from another

bank,  being  Indian  Bank.  Said  Indian  Bank  is  the  initiator  of  the

CIRP, who filed an application under Section 7 of the Insolvency and

Bankruptcy Code, 2016 (the Code). DB International (Asia Ltd.) is

the appellant in C.A. No.4967-68 of 2019. A concern by the name of

UMW had provided corporate guarantee to Deutsche Bank, Singapore

as collateral to the said term loan.  The Adjudicating Authority, the

National Company Law Tribunal,  Hyderabad Bench (NCLT) by an

order  passed  on  21st January,  2019  approved  the  resolution  plan

submitted  by  MSL  in  an  application  filed  by  the  Resolution

Professional. This resolution plan included an upfront payment of Rs.

477  crores.   Ancillary  directions  were  issued  by  the  Adjudicating

Authority while giving approval to the said resolution plan with the

finding that the said plan met all the requirements of Section 30(2) of

the Code.  This order was carried up in appeal before the National

Company  Law  Appellate  Tribunal  (NCLAT),  being  the  Appellate

Authority under the Code by two persons who were parties before the

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NCLT.   They  were  one  of  the  promoters  of  the  corporate  debtor,

Padmanabhan Venkatesh and the  Indian Bank.  These appeals  were

registered as Company Appeal (AT) (Insol.) Nos. 128 & 247 of 2019.

The appellant in Company Law (AT) (Insol.) No. 128/2019 was said

Padmanabhan  Venkatesh.  The  appellant  in  Company  Law  (AT)

(Insol.) No. 247 of 2019 was the Indian Bank.  These two appeals

were  heard  with  another  appeal  filed  by the  successful  Resolution

Applicant  (MSL)  against  an  order  of  the  Adjudicating  Authority

passed on 28th February 2019.  The MSL’s appeal was registered as

Company Appeal (AT) (Insol.) No. 220 of 2019.

2. This appeal by MSL was in connection with I.A. No. 125 of

2019  filed  by  them  in  CP(IB)  No.  49/7/HDB/2017.   In  that

application, MSL sought directions upon the corporate debtor as also

the police and administrative authorities for effective implementation

of the resolution plan.  Grievance of MSL in that proceeding was that

they were not being given access to the assets of the corporate debtor.

The  Adjudicating  Authority,  while  disposing  of  the  application,

directed, inter-alia:-

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“20. Even  though  appeal  is  preferred  by Respondent No.5 to the Hon’ble NCLAT, there is no stay  and  the  appeal  is  coming  up  for  hearing  on 07.03.2019.  The  implementation  of  this  Plan  is subject to the outcome of the Appeal. Therefore, a direction can be given to  the concerned to  extend cooperation to the Applicant herein in implanting the Resolution Plan of the Corporate Debtor Company and it is only subject to the outcome of the Appeal which is pending before Hon’ble NCLAT.  

21. A  direction  cannot  be  given  to  the Superintendent of Police and Collector because by the  date  of  Application,  the  Applicant  has  not deposited  the  bid  amount.   Therefore,  at  the  first instance direction can be given to all concerned of the  Corporate  Debtor  Company  to  extend  all cooperation to the Applicant.  It is always open to the Applicant to approach the Tribunal for suitable direction, if so required.

22. In  the  result,  Application  is  disposed  of directing  the  concerned  of  the  Corporate  Debtor Company to extend all cooperation to the Applicant herein in implementing the Resolution Plan and it is open  to  Resolution  Applicant  to  approach  the Tribunal for necessary direction subsequent to this order, if so required.”  (quoted verbatim)

3. In  the  common  order  dated  8th April  2019  in  the  aforesaid

appeals, the Appellate Tribunal, inter-alia, observed and held:-

“45. ‘M/s.  Maharashtra  Seamless  Ltd.’ (‘Successful  Resolution Applicant’)  has taken plea that out of verified claims of Rs.2,02,88,948/-, and is willing to pay the verified ‘Operational Creditors’ at

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the  same  percentage  as  that  of  the  ‘Financial Creditors’ i.e.  25% which shall  be  paid  within  30 days of the ‘Successful Resolution Applicant’ getting clear and unfettered possession of and rights to the ‘Corporate  Debtor’.  The 25% of verified  claim of Rs.2,02,88,948/-  is  Rs.  50,72,237/-  approximately, therefore, even if such offer is accepted then it will be  Rs.577,50,237/-  i.e.  Rs.578  Crores approximately,  which  is  also  much  less  than  the liquidation value of Rs.597.54 Crores.

46. Taking into consideration the nature of the case,  we  are  of  the  view  that  ‘M/s.  Maharashtra Seamless Ltd.’ should increase upfront payment of Rs.477  Crores  as  proposed  to  the  ‘Financial Creditors’,  ‘Operational  Creditors’  and  other Creditors to Rs.597.54 Crores by paying additional Rs. 120.54 Crores approximately to make it at par with  the  average  liquidation  value  of  Rs.597.54 Crores.  If  the  upfront  amount  is  increased  to Rs.597.54  Crores,  the  total  amount  should  be distributed amongst the ‘Financial Creditors’ and the ‘Operational Creditors’ at  same ratio as suggested. As per suggestion of the ‘Resolution Applicant’, the ‘Operational  Creditors’  can  be  given  same percentage of amount as allocated to the ‘Financial Creditors’.

47. If  the  ‘Resolution  Applicant’  fails  to undertake  the  payment  of  additional  amount  of Rs.120.54  Crores  in  addition  to  Rs.477  Crores thereby  raising  it  to  Rs.597.54  Crores  (total)  and deposit the amount in the Escrow Account within 30 days in such case, the impugned order of approval of the  ‘Resolution  Plan’ be  treated  to  be  set  aside. Thereafter,  the  Adjudicating  Authority  will  pass

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appropriate order in accordance with law.”  (quoted verbatim)

4. So far as the appeal of MSL before the Appellate Authority is

concerned, the same had direct correlation with the other two appeals.

In this appeal, it was held and observed by the NCLAT:-

“54. In  the  present  case,  we  find  that  the ‘Resolution Plan’ is against the statement and object of the ‘I&B Code’ and, therefore, we have directed M/s. Maharashtra Seamless Limited’ to modify the plan.  Till  the  plan  is  modified,  as  ordered  above, ‘M/s.  Maharashtra  Seamless  Limited’ cannot  take over the ‘Corporate Debtor’ without complying with the direction as given and recorded above.

                   55. However,  it  does  not  mean  that  the Promoters/ Ex-Directors will create hindrance in the matter of taking over the premises and plant of the ‘Corporate Debtor’ which for the present should be taken  over  by  the  ‘Resolution  Professional’.  The Adjudicating  Authority  will  direct  the  ‘Resolution Professional’ to take over the possession of the plant and  offices  and  other  premises  and  assets  of  the ‘Corporate Debtor’ to ensure that the assets remain intact  till  the  plan is  improved by the ‘Resolution Applicant’ in a manner as directed above. For taking over  such  possession,  the  Adjudicating  Authority will direct the concerned District Collector and the Superintendent of Police of the District  to provide necessary  force  to  enable  the  ‘Resolution Professional’ to take over the premises and plant of the  ‘Corporate  Debtor’ and  all  the  moveable  and immoveable assets.

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56. If  the  ‘Resolution  Applicant’ modifies  the ‘Resolution  Plan’,  as  ordered  above  and  deposits another sum of Rs.120.54 Crores within 30 days, by improving the plan, the Adjudicating Authority will allow ‘M/s. Maharashtra Seamless Limited’ to take over  the  possession  of  the  ‘Corporate  Debtor’ including its moveable and immoveable assets and the plant. On failure, the plan approved in favour of ‘M/s. Maharashtra Seamless Ltd.’ deemed to be set aside  and  the  Adjudicating  Authority  will  pass appropriate order in accordance with law.”

(quoted verbatim)

5. There is an application registered as I.A. No. 115118 of 2019,

taken out by MSL in connection with their own appeal before us. In

this application,  they have, in substance, sought refund of the sum

deposited in terms of the resolution plan alongwith interest.  In this

application,  MSL has also applied for withdrawal of the resolution

plan. Their grievance is that in order to take over the corporate debtor,

they had availed of substantial term loan facility and deposited the

sum  of  Rs.477  crores  for  resolution  of  the  corporate  debtor  in  a

designated escrow account  on 19th  February,  2019 but  because  of

delay in implementation of the resolution plan, they were compelled

to bear the interest burden. It is also their case that the export orders

they had accepted in anticipation of successful implementation of the

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resolution plan were cancelled as a result of which takeover of the

corporate debtor had become unworkable.  

6. The application of the Indian Bank under Section 7 of the Code

was filed on 12th June 2017. An Interim Resolution Professional was

appointed  initially,  who was  changed  later  in  the  proceeding.  The

Resolution  Professional  on  10th January,  2018,  issued  invitation

calling  applications  from interested  parties  by 28th February,  2018.

This  timeline  was  subsequently  extended  from  time  to  time,  and

altogether four resolution plans were placed before the Committee of

Creditors (CoC). This Committee was constituted on 18th August 2017

by the Interim Resolution Professional.  One of these plans was by

MSL.  The other  Resolution  Applicant  whose  offer  was  considered

was  M/s.  Area  Projects  Consultants  Private  Limited.   MSL  had

offered upfront payment of Rs.477 crores. The resolution plan of MSL

was approved by the financial creditors having 87.10% of the voting

shares.  This  voting  block  consisted  of  the  two aforesaid  Deutsche

Bank entities.   The Deutsche Bank International (Asia) Limited had

73.40% vote share and the Indian Bank had 12.90% voting share in

CoC.

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7. Two registered valuers  being K. Vijay Bhasker  Reddy and P.

Madhu  were  initially  appointed  for  determining  the  value  of  the

corporate debtor. Their valuations were to the tune of Rs.681 crores

and Rs.513 crores respectively. On account of substantial difference

in their valuations, the Committee appointed a third valuer, Duff and

Phelps.   They  valued  the  Corporate  debtor  at  Rs.352  crores.  The

Committee thereafter took into consideration the average of the two

closest estimates of valuation by P. Madhu and Duff and Phelps and

liquidation value was assessed to be Rs.432.92 crores.

8. Subsequently, an application was filed before the Adjudicating

Authority by the Resolution Professional in which he sought approval

of  the  resolution  plan.   That  application  was  disposed  of  by  the

Adjudicating Authority by an order passed on 28th September, 2018,

inter-alia,  directing the  Resolution Professional  to  re-determine  the

liquidation value of the corporate debtor by taking into consideration

the first and second valuation of P. Madhu and K. Vijay Bhaskar.  It

was, inter alia, directed in this order of 28th September, 2018:-

“(2)  The  Resolution  Professional  shall  convene  a meeting  of  CoC to  place  the  qualified  Resolution

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Plans  along  with  Resolution  Plan  of  MSL before CoC  for  reconsideration,  in  the  light  of  revised liquidation value of the Corporate Debtor Company. (3) 30 days’ time is excluded from the CIRP period with  effect  from  today  for  completing  the  above direction. (4) The Resolution Professional is directed to allow Directors  /  Suspended  Board  to  participate  in  the CoC  meetings  and  permit  them  to  express  their views and suggestions and record the same in the Minutes of the meeting of the CoC.”

9. Revised valuation of the corporate debtor was made, enhancing

the same to Rs.597.54 crores from Rs.432.92 crores.  In its 9th meeting

held on 16th October, 2018, the Committee took into consideration the

revised  valuation  and  on  majority  voting  approved  again  the

resolution  plan  of  MSL.   The  directors  of  suspended  Board  were

given opportunity to express their views and suggestions before the

Committee.  

10. The  order  of  the  Adjudicating  Authority  passed  on  28th

September 2018 was appealed against by MSL before NCLAT. This

appeal was registered as Company Appeal (AT) (Insolvency) No.637

of  2018.  That  appeal  was  disposed  of  by  the  Tribunal  on  12th

November 2018 with the following observation and direction:-

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“Learned  counsel  appearing  on  behalf   of  the member  of  the  ‘Committee  of  Creditors’ submits that  during  the  pendency  of  this  appeal  in compliance  of  the  order  of  the  Adjudicating Authority,  revised liquidation value was taken into consideration  by  the  ‘Committee  of  Creditors’ whereinafter the ‘resolution plan of the appellant’ – ‘Maharashtra Seamless Ltd.’ has been approved. It is also accepted by the learned counsel appearing on behalf  of  the  ‘Resolution  Professional’  and  the learned counsel appearing on behalf of the appellant. In view of the aforesaid position, we are not inclined to deliberate on the question as raised in the present appeal, which may be answered in some other case. The Adjudicating Authority is now required to pass order  under  Section  31  of  the  I&B Code  without granting  unnecessary  adjournments  to  any  of  the party  uninfluenced  by  its  earlier  order,  which  is under  challenge.  The  appeal  is  disposed  of  with aforesaid  observations  and  directions.”  (quoted verbatim)

11. Before disposal of Company Appeal (AT) (Insolvency) No.637

of 2018, on 25th October 2018 the resolution professional had filed an

application  (I.A.No.472/2018)  before  the  Adjudicating  Authority

seeking approval of the resolution plan as per the decision in the 9 th

meeting  of  the  committee  held  on  16th October  2018.  We  have

referred to the outcome of the said meeting earlier in this judgment.

The order of the Adjudicating Authority was issued on 21st January

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2019 approving the resolution plan upon considering Section 31 of

the  2016  Code.  The  Adjudicating  Authority,  inter-alia,  held  and

observed:-

“27. The  Resolution  Professional  has  filed  the present  Application  enclosing  the  minutes  of  9th

CoC. The question whether  the plan submitted by M/s MSL is in conformity with Section 30 (2) of the Code. If it is in conformity, then the plan is to be approved under Section 31 of the Code.  The CoC has examined all  eligible resolution plans again in the  9th CoC  meeting  held  on  16.10.2018.  The Resolution Plan submitted by M/s MSL is below the revised Liquidation Value.  The difference  is  about Rs.120  crores.  However,  as  per  directions  of  the Hon’ble  NCLAT,  this  Tribunal  to  decide  the  plan filed by M/s. MSL without being influenced by its previous order.

28. The CoC has approved the Resolution Plan submitted  by M/s  MSL with  a  majority  of  voting share of Financial Creditors at 87.10%. The CoC in its wisdom has approved the Plan. No doubt Indian Bank,  the  other  Financial  Creditor  having  voting share  at  12.90%  opposed  for  approval  of  the Resolution Plan. The minimum required percentage of voting for approval of the Resolution Plan as per the  latest  amendment  is  66%.  In  this  case,  the Resolution Plan with voting share  of 87.10 of  the Financial Creditors approved the plan.

29. The  other  contention  raised  that  upfront payment is below the revised liquidation value and therefore,  the  Plan  could  not  be  accepted.  On the other hand, Hon’ble NCLAT has held in Company

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Appeal No.637/2018 that this Tribunal to decide the Application under Section 31 of IBC without being influenced by the previous order. When such is the case,  the  revised Liquidation value  has  no role  to pay while considering the Resolution Plan submitted by M/s MSL. The Tribunal has to test the Resolution Plan with reference to provisions of Section 30 (2) of  IBC.  The  Resolution  Professional  certified  that Plan of M/s MSL is in conformity with provisions of Section  30  (2)  of  the  Code.  So,  the  Liquidation Value prior to re-determination if taken into account, the upfront payment offered by M/s MSL is over and above  the  Liquidation  Value.  Therefore,  the objection taken by the Director (Suspended Board) and also Indian Bank could not be taken into account in view of the direction of Hon’ble NCLAT.

30. The  next  contention  raised  that  the Resolution Applicant has not obtained prior approval of the CCI as required under Section 31 (4) of the Code.  The  Counsel  for  Resolution  Professional would contend that there is no need to obtain prior approval of CCI as the plan submitted by M/s MSL does  not  fall  under  the  provisions  of  CCI.  The Director (Suspended Board) has raised the same in the  9th CoC meeting  and it  is  answered  that  such approval  is  not  necessary.  Even otherwise  Section 31(4)  provides  that  necessary  approval  required under any law for the time being in force is to be obtained by Resolution Applicant within a period of one year or within the prescribed period under such law.  Therefore,  Resolution  Applicant  can  obtain necessary approvals in a period of one year if it is required.  Thus,  the  Resolution  Plan  of  M/s  MSL filed by Resolution Professional is to be approved as it  meets  all  the  requirements  of  Section 30 (2)  of IBC.

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31. In the result, the Resolution plan submitted by M/s Maharashtra Seamless Limited is approved and that the same shall be binding on the Corporate Debtor  and  its  employees,  members,  creditors, guarantors  and  other  stakeholders  involved  in  the Resolution Plan.

32. The  revival  plan  of  the  company  in accordance with the approved resolution plan shall come  into  force  with  immediate  effect.  The moratorium  order  passed  by  this  Tribunal  under Section 14 shall cease to have vacated.

33. The resolution professional shall forward all records  relating  to  the  conduct  of  the  corporate insolvency resolution process and the resolution plan to the IBBI to be recorded on its database.

34. CA  No.  472/2018  in  CP  (IB) No.49/7HBD/2017  is  disposed  of  in  terms  of  the above.” (quoted verbatim)

12. The complaint of Padmanabhan Venkatesh, one of the original

promoters  and  the  Bank  before  the  NCLAT was  primarily  on  the

ground  that  the  approval  of  resolution  plan  amounting  to  Rs.477

crores was giving the Resolution Applicant windfall as they would get

assets valued at Rs.597.54 crores at much lower amount. The other

ground  urged by the  Bank was  that  the  Area  Projects  Consultants

Private Limited, one of the Resolution Applicants had made revised

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offer of Rs.490 crores, which was more than the amount offered by

the MSL. In course of the hearing of the appeal, it appears that the

successful Resolution Applicant had indicated infusion of more funds,

which was taken into consideration by the NCLAT. This would appear

from the following passage of the order of the NCLAT under appeal

before us:-

“24. It  was  submitted  that  actually  the  total exposure of the ‘Successful Resolution Applicant’ is around Rs.657.50 Crores although Rs. 477 Crores is upfront  amount.  In  addition  to  that  Rs.  180.50 Crores  which  would  be  infused  directly  in  the ‘Corporate Debtor’ by ‘M/s. Maharashtra Seamless Ltd.’-  (4th Respondent).  Further,  Rs.  57  Crores would  be  infused  towards  25% margin  money  of working capital expenditure. Moreover, in fact, the total working capital Rs. 224 Crores, the balance to be  taken as  loan from Bank(s),  which would  also require Corporate Guarantees of the 4th Respondent.

25. It was further contended that the ‘Corporate Debtor’ plant has been lying closed for the last three years.  Additionally,  in  all  its  operational  life  prior thereto,  the  ‘Corporate  Debtor’ over  a  period  of seven  years  could  not  produce  even  a  total  of 1,50,000 MT, which is supposed to be its production capacity of one year. Thus, it was only after due and in-depth consideration, including taking into account extensive  further  investments,  which  would mandatorily have to be made to get  the Corporate Debtor’  up  and  running,  that  the  ‘Successful Resolution Applicant’ offered Rs. 477 Crores, which

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was payable within 30 days of the approval of the plan.

26. Therefore,  according  to  counsel  for  4th

Respondent, the aforesaid infusion of funds by the 4th Respondent aggregating Rs.657.50 Crores is for the  maximization  of  the  assets  of  the  ‘Corporate Debtor’.” (quoted verbatim)

13. The NCLAT, however, found the reasoning of the Adjudicating

Authority flawed, inter-alia, for the following reasons:-

“34. Therefore, it is clear that the ‘Committee of Creditors’  has  also  accepted  the  average  of  the liquidation value which comes to Rs. 597.54 Crores and on the basis of which the ‘Resolution Plan’ was considered.  If  the  ‘Resolution  Plan’ is  considered, then it will be evident that 25% of the admitted dues of the ‘Financial Creditors’ have been allowed in the ‘Resolution  Plan’.  On  the  other  hand,  the ‘Operational  Creditors’  have  been  discriminated. The liquidation  value  being Rs.597.54 Crores,  the upfront  payment  suggested  by  the  ‘Resolution Applicant’  being  less  i.e.,  Rs.  477  Crores,  the payment to the ‘Operational Creditors’ is lower than the  proportionate  liquidation  value,  therefore,  the ‘Resolution Plan’, as approved by the Adjudicating Authority is against Section 30(2) (b) of the ‘I&B Code’.” (quoted verbatim)

We  have  reproduced  the  final  finding  and  directions  of  the

NCLAT earlier in this judgment.

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14. The appeal of MSL argued by Mr. Kapil Sibal, learned senior

counsel, is mainly on the ground that the NCLAT had exceeded its

jurisdiction in directing matching of liquidation value in the resolution

plan. MSL in the appeal have sought to sustain the resolution plan but

their prayer in the interlocutory application is refund of the amount

remitted  coupled  with  the  plea  of  withdrawal  of  resolution  plan.

However,  their  main  case  in  the  appeal  is  that  final  decision  on

resolution  plan  should  be  left  to  the  commercial  wisdom  of  the

Committee of Creditors and there is no requirement that resolution

plan should match the maximized asset value of the corporate debtors.

On  the  other  hand,  Mr.  Abhishek  Manu  Singhvi,  learned  senior

counsel appearing for two main financial creditors, while supporting

the main appeal of Mr. Sibal has resisted the plea for withdrawal of

the resolution plan and refund of the sum already remitted by Mr.

Sibal’s clients. Mr. Singhvi has highlighted the fact that the exposure

of his clients to the  total debt of the corporate debtors is Rs.2060

crores  and  his  clients  being  the  primary  creditors  to  the  tune  of

87.10% of the total dues, it was his clients who would have suffered

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loss, if any, on account of resolution plan not matching the liquidation

value.

15. On  the  aspect  of  withdrawal  of  the  plan,  Mr.  Singhvi  has

referred to Section 12-A of the 2016 Code. His submission is that the

only route through which a resolution applicant can travel back after

admission of the resolution plan is the aforesaid provision.  Section

12-A of the 2016 Code stipulates:-

“12A. Withdrawal of application admitted under section  7,  9  or 10. –  The  Adjudicating  Authority may allow the  withdrawal  of  application  admitted under  section 7  or  section 9  or  section  10,  on an application made by the applicant with the approval of ninety per cent. voting share of the committee of creditors, in such manner as may be specified.”

16. It  is  admitted position that  approximately Rs.472 crores  have

been  remitted  to  the  financial  creditors  which  was  received  from

Mr.  Sibal’s  clients.  The  D.B.  International  Asia  Limited,  having

73.40% voting shares in the CoC has also assailed the impugned order

on grounds similar to that taken by the MSL.

17. We  shall  address  two  issues  in  this  appeal.  The  first  one  is

whether the scheme of the Code contemplates that the sum forming

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part of the resolution plan should match the liquidation value or not.

The second question we shall deal with is as to whether Section 12-A

is  the  applicable  route  through  which  a  successful  Resolution

Applicant  can  retreat.  Before  we  proceed  to  answer  these  two

questions,  we  must  indicate  that  before  the  Appellate  Authority

substantial  argument  was  advanced over  failure  on the  part  of  the

Adjudicating  Authority  to  maintain  parity  between  the  financial

creditors and operational creditors on the aspect of clearing dues.  

18.   Section 30 (2) (b) of the Code specifies the manner in which a

resolution plan shall provide for payment to the operational creditors.

The provisions of Section 30 of the Code is reproduced below:-

“30.  Submission  of  resolution  plan.  –  (1)  A resolution  applicant  may  submit  a  resolution plan along with an affidavit stating that he is eligible under  section  29A to  the  resolution professional prepared on the basis of the information memorandum.

(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;

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(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 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

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(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.

(3) The resolution professional shall present to the committee  of  creditors  for  its approval  such resolution  plans  which  confirm  the  conditions referred to in sub-section (2).

(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:

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    Provided that the committee of creditors shall not approve  a  resolution  plan,  submitted  before  the commencement  of  the  Insolvency  and  Bankruptcy Code  (Amendment)  Ordinance,  2017,  where  the resolution  applicant  is  ineligible  under section 29A and may require the resolution professional to invite  a  fresh  resolution  plan  where  no  other resolution plan is available with it:

    Provided  further that  where  the  resolution applicant referred to in the first proviso is ineligible under  clause  (c)  of  section  29A,  the  resolution applicant  shall  be  allowed  by  the  committee  of creditors such period, not exceeding thirty days, to make  payment  of  overdue  amounts  in  accordance with the proviso to clause (c) of section 29A:

   Provided also that nothing in the second proviso shall  be  construed  as  extension  of  period  for  the purposes of the proviso to sub-section (3) of section 12, and the corporate insolvency resolution process shall be completed within the period specified in that sub-section.”.

Provided also that  the  eligibility  criteria  in  section 29A as amended by the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2018 shall apply to the  resolution  applicant  who  has  not  submitted resolution plan as on the date of commencement of the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2018.

(5) The resolution applicant may attend the meeting of the committee of creditors in which the resolution plan of the applicant is considered:

    Provided that  the resolution applicant  shall  not have a right to vote at the meeting of the committee of creditors unless such resolution applicant is also a financial creditor.

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(6)  The  resolution  professional  shall  submit  the resolution  plan  as  approved  by  the committee  of creditors to the Adjudicating Authority.”

19. The manner in which the claims of the operational creditors shall

be considered in a CIRP has been dealt with by a co-ordinate Bench

of this Court (of which two of us, Nariman J. and Ramasubramanian

J. were members) in the case of  Committee of Creditors of Essar

Steel  India  Limited  vs.  Satish  Kumar Gupta, decided  on  15th

November,  2019  in  Civil  Appeal  Nos.  8766-8767  of  2019 (2019

SCC OnLine  SC 1478).  It  has  been held  in  paragraph  53 of  this

judgment in the said report:-

“53.  However,  as  has  been  correctly  argued  on behalf of the operational creditors, the preamble of the Code does speak of maximisation of the value of assets of corporate debtors and the balancing of the interests of all stakeholders. There is no doubt that a key  objective  of  the  Code  is  to  ensure  that  the corporate debtor keeps operating as a going concern during the insolvency resolution process  and must therefore make past and present payments to various operational creditors without which such operation as  a  going  concern  would  become  impossible. Sections 5(26), 14(2), 20(1), 20(2)(d) and (e) of the Code read with Regulations 37 and 38 of the 2016 Regulations  all  speak  of  the  corporate  debtor running  as  a  going concern  during the  insolvency

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resolution  process.  Workmen  need  to  be  paid, electricity  dues  need  to  be  paid,  purchase  of  raw materials  need  to  be  made,  etc.  This  is  in  fact reflected in this court’s judgment in Swiss Ribbons (supra) as follows:-

“26.  The  Preamble  of  the  Code  states  as follows:

“An Act to consolidate and amend the laws relating  to  reorganisation  and  insolvency resolution  of  corporate  persons,  partnership firms and individuals in a time-bound manner for  maximisation of  value of  assets  of  such persons,  to  promote  entrepreneurship, availability of credit and balance the interests of all the stakeholders including alteration in the  order  of  priority  of  payment  of government  dues  and  to  establish  an Insolvency  and  Bankruptcy  Board  of  India, and  for  matters  connected  therewith  or incidental thereto.”

27. As is discernible, the Preamble gives an insight into what is sought to be achieved by the Code. The Code is  first  and foremost,  a Code  for  reorganisation  and  insolvency resolution of  corporate  debtors.  Unless  such reorganisation  is  effected  in  a  time-bound manner,  the  value  of  the  assets  of  such persons will deplete. Therefore, maximisation of value of the assets of such persons so that they are efficiently run as going concerns is another very important objective of the Code. This, in turn, will promote entrepreneurship as the persons in management of the corporate

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debtor  are  removed  and  replaced  by entrepreneurs.  When,  therefore,  a  resolution plan  takes  off  and  the  corporate  debtor  is brought back into the economic mainstream, it  is  able  to  repay its  debts,  which,  in  turn, enhances the viability of credit in the hands of banks  and  financial  institutions.  Above  all, ultimately, the interests of all stakeholders are looked  after  as  the  corporate  debtor  itself becomes  a  beneficiary  of  the  resolution scheme— workers  are  paid,  the creditors  in the  long  run  will  be  repaid  in  full,  and shareholders/investors  are  able  to  maximise their  investment. Timely  resolution  of  a corporate  debtor  who  is  in  the  red,  by  an effective  legal  framework,  would  go  a  long way  to  support  the  development  of  credit markets. Since more investment can be made with  funds  that  have  come  back  into  the economy, business then eases up, which leads, overall,  to  higher  economic  growth  and development of the Indian economy. What is interesting to note is that the Preamble does not, in any manner, refer to liquidation, which is only availed of as a last resort if  there is either  no  resolution  plan  or  the  resolution plans submitted are not up to the mark. Even in  liquidation,  the  liquidator  can  sell  the business  of  the  corporate  debtor  as  a  going concern.  (See  ArcelorMittal  [ArcelorMittal (India)  (P)  Ltd.  v.  Satish  Kumar  Gupta, (2019) 2 SCC 1] at para 83, fn 3).” (emphasis supplied)  

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“54.  This  is  the  reason  why  Regulation  38(1A) speaks of a resolution plan including a statement as to  how  it  has  dealt  with  the  interests  of  all stakeholders,  including operational  creditors of the corporate  debtor.  Regulation  38(1)  also  states  that the  amount  due  to  operational  creditors  under  a resolution plan  shall  be  given priority  in  payment over financial creditors. If nothing is to be paid to operational  creditors,  the  minimum,  being liquidation  value  -  which  in  most  cases  would amount to nil after secured creditors have been paid -  would  certainly  not  balance  the  interest  of  all stakeholders  or  maximise  the  value  of  assets  of  a corporate  debtor  if  it  becomes  impossible  to continue  running  its  business  as  a  going  concern. Thus,  it  is  clear  that  when  the  Committee  of Creditors exercises its commercial wisdom to arrive at a business decision to revive the corporate debtor, it  must  necessarily  take  into  account  these  key features  of  the  Code  before  it  arrives  at  a commercial decision to pay off the dues of financial and  operational  creditors.  There  is  no  doubt whatsoever  that  the  ultimate  discretion of  what  to pay and how much to pay each class or subclass of creditors is with the Committee of Creditors, but, the decision of such Committee must reflect the fact that it has taken into account maximising the value of the assets of the corporate debtor and the fact that it has adequately balanced the interests of all stakeholders including operational creditors. This being the case, judicial review of the Adjudicating Authority that the resolution  plan  as  approved  by  the  Committee  of Creditors  has  met  the  requirements  referred  to  in Section 30(2) would include judicial review that is mentioned in Section 30(2)(e), as the provisions of

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the  Code  are  also  provisions  of  law  for  the  time being  in  force.  Thus,  while  the  Adjudicating Authority  cannot  interfere  on  merits  with  the commercial  decision  taken  by  the  Committee  of Creditors, the limited judicial review available is to see that the Committee of Creditors has taken into account the fact that the corporate debtor needs to keep going as a going concern during the insolvency resolution  process;  that  it  needs  to  maximise  the value  of  its  assets;  and  that  the  interests  of  all stakeholders including operational creditors has been taken care of. If the Adjudicating Authority finds, on a  given  set  of  facts,  that  the  aforesaid  parameters have not been kept in view, it may send a resolution plan back to the Committee of Creditors to re-submit such plan after satisfying the aforesaid parameters. The reasons  given by the  Committee  of  Creditors while  approving  a  resolution  plan  may  thus  be looked at by the Adjudicating Authority only from this point of view, and once it  is satisfied that the Committee of Creditors has paid attention to these key features, it must then pass the resolution plan, other things being equal.”

20. It has been further been held in the case of  Essar Steel

(supra):-

“124.  The  other  argument  of  Shri  Sibal  that Section  53  of  the  Code  would  be  applicable only during liquidation and not at the stage of resolving insolvency is correct. Section 30(2)(b) of  the  Code  refers  to  Section  53  not  in  the context of priority of payment of creditors, but

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only  to  provide  for  a  minimum  payment  to operational creditors. However, this again does not  in  any  manner  limit  the  Committee  of Creditors from classifying creditors as financial or operational and as secured or unsecured. Full freedom and discretion has been given, as has been  seen  hereinabove,  to  the  Committee  of Creditors  to  so  classify  creditors  and  to  pay secured creditors amounts which can be based upon  the  value  of  their  security,  which  they would otherwise be able to realise outside the process  of  the  Code,  thereby  stymying  the corporate resolution process itself.”

21.  Submission of the respondents supporting the impugned order of

NCLAT has been in reference to Section 30(2)(b) of the 2016 Code.

We have  taken  note  of  submission  made  by  Mr.  Singhvi  that  the

operational creditors of the corporate debtor come way down in the

priority list for distribution of assets under Section 53 of the Code in

forming our opinion over applicability of clause 38(1) of the 2016

Regulations expressed in the previous paragraph. But on this point, a

clear guidance comes from the decision of co-ordinate Bench in the

case of Essar Steel (supra) on the point of dealing with the claims of

operational  creditors.  It  has  also  been  held  in  that  judgment  in

paragraph 70 of the said report:-  

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“70.  By  reading  paragraph  77  de  hors  the earlier  paragraphs,  the  Appellate  Tribunal  has fallen  into  grave  error.  Paragraph  76  clearly refers  to  the  UNCITRAL  Legislative  Guide which  makes  it  clear  beyond  any  doubt  that equitable treatment is only of similarly situated creditors.  This  being  so,  the  observation  in paragraph  77  cannot  be  read  to  mean  that financial and operational creditors must be paid the same amounts in any resolution plan before it  can pass muster.  On the contrary, paragraph 77 itself makes it clear that there is a difference in  payment  of  the  debts  of  financial  and operational  creditors,  operational  creditors having  to  receive  a  minimum payment,  being not less than liquidation value, which does not apply  to  financial  creditors.  The  amended Regulation  38  set  out  in  paragraph  77  again does  not  lead  to  the  conclusion  that  financial and  operational  creditors,  or  secured  and unsecured  creditors,  must  be  paid  the  same amounts, percentage wise, under the resolution plan  before  it  can  pass  muster.  Fair  and equitable dealing of operational creditors’ rights under  the  said  Regulation  involves  the resolution  plan  stating  as  to  how it  has  dealt with the interests of operational creditors, which is not the same thing as saying that they must be paid  the  same  amount  of  their  debt proportionately.  Also,  the  fact  that  the operational  creditors  are  given  priority  in payment  over  all  financial  creditors  does  not lead to the conclusion that such payment must necessarily be the same recovery percentage as financial creditors. So long as the provisions of the Code and the Regulations have been met, it is  the  commercial  wisdom  of  the  requisite

29

majority of the Committee of Creditors which is to negotiate and accept a resolution plan, which may  involve  differential  payment  to  different classes  of  creditors,  together  with  negotiating with a prospective resolution applicant for better or  different  terms  which  may  also  involve differences in distribution of amounts between different classes of creditors.”

22.  But the controversy on there being no provision in the resolution

plan  for  operational  creditors  is  only  academic  now.  Before  the

Appellate  Authority  itself  the  successful  Resolution  Applicant  had

agreed to clear the dues of the operational creditors in percentage at

par  with the financial  creditors.  Moreover,  none of  the operational

creditors has come before us questioning the legality of the resolution

plan. It would appear from para 29 of the order under appeal:

“29. It was submitted that the claims received of the  ‘Operational  Creditors’  by  the  Respondent No.1 were to the tune of Rs.2,26,70,153/- whereas the  claims  verified  were  of  Rs.2,02,88,948/-. However, it was submitted that the 4th Respondent is  willing  to  pay  the  verified  ‘Operational Creditors’ at  the  same percentage  as  that  of  the ‘Financial  Creditors’,  i.e.  25%,  which  shall  be paid within 30 days of the ‘Successful Resolution Applicant’ getting clear and unfettered possession of  and  rights  to  the  ‘Corporate  Debtor’.”

(quoted verbatim)

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23. The Adjudicating Authority has primarily relied on Section 31

of  the  Code  in  approving  the  resolution  plan.  The  said  provision

reads:

“31.  Approval  of  resolution  plan. –  (1)  If  the Adjudicating  Authority  is  satisfied  that  the resolution  plan  as  approved  by  the  committee  of creditors under sub-section (4) of section 30 meets the requirements as referred to in sub-section (2) of section 30, it shall by order approve the resolution plan which shall be binding on the corporate debtor and its employees, members, creditors, including the Central Government, any State Government or any local  authority  to  whom  a  debt  in  respect  of  the payment of dues arising under any law for the time being in force, such as authorities to whom statutory dues  are  owed,  guarantors  and  other  stakeholders involved in the resolution plan.

Provided  that  the  Adjudicating  Authority  shall, before  passing an order  for  approval  of  resolution plan  under  this  sub-section,  satisfy  that  the resolution  plan  has  provisions  for  its  effective implementation.

(2)  Where  the  Adjudicating  Authority  is  satisfied that  the  resolution  plan  does  not  confirm  to  the requirements referred to in sub-section (1), it may, by an order, reject the resolution plan.

(3)  After  the  order  of  approval  under  sub-section (1),—

(a)  the  moratorium  order  passed  by  the Adjudicating  Authority  under  section  14 shall cease to have effect; and

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(b) the resolution professional shall forward all  records  relating  to  the  conduct  of  the corporate insolvency resolution process and the  resolution  plan  to  the  Board  to  be recorded on its database.

(4)  The  resolution  applicant  shall,  pursuant  to  the resolution  plan  approved  under  sub-section  (1), obtain  the  necessary  approval  required  under  any law for the time being in force within a period of one year from the date of approval of the resolution plan by the Adjudicating Authority under sub-section (1) or within such period as provided for in such law, whichever is later.

Provided that where the resolution plan contains a provision for combination, as referred to in section 5 of  the  Competition  Act,  2002,  the  resolution applicant  shall  obtain  the  approval  of  the Competition  Commission  of  India  under  that  Act prior to the approval of such resolution plan by the committee of creditors.”

24. On  behalf  of  the  Indian  Bank  and  the  said  promoter  of  the

corporate debtor, reliance was placed on Clause 35 of The Insolvency

and Bankruptcy Board of India (Insolvency Resolution Process for

Corporate Persons) Regulations, 2016:

“35. Liquidation value. (1) Liquidation value is the  estimated  realizable  value  of  the  assets  of  the corporate debtor if the corporate debtor were to be liquidated on the insolvency commencement date.  

(2)  Liquidation  value  shall  be  determined  in  the following manner:  

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(a)  the  two  registered  valuers  appointed  under Regulation 27 shall submit to the interim resolution professional  or  the  resolution  professional,  as  the case  may be,  an  estimate  of  the  liquidation  value computed  in  accordance  with  internationally accepted  valuation  standards,  after  physical verification of the inventory and fixed assets of the corporate debtor;  

(b)  if  in  the  opinion  of  the  interim  resolution professional  or  the  resolution  professional,  as  the case  may  be,  the  two  estimates  are  significantly different,  he may appoint another registered valuer who shall submit an estimate computed in the same manner; and  

(c) the average of the two closest estimates shall be considered the liquidation value.  

(3)  The  resolution  professional  shall  provide  the liquidation  value  to  the  committee  in  electronic form.”

25. Now  the  question  arises  as  to  whether,  while  approving  a

resolution plan, the Adjudicating Authority could reassess a resolution

plan  approved  by  the  Committee  of  Creditors,  even  if  the  same

otherwise complies with the requirement of Section 31 of the Code.

Learned counsel appearing for the Indian Bank and the said erstwhile

promoter of the corporate debtor have emphasised that there could be

no reason to release property valued at Rs.597.54 crores to MSL for

Rs.477 crores. Learned counsel appearing for these two respondents

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have sought to strengthen their submission on this point referring to

the  other  Resolution  Applicant  whose  bid  was  for  Rs.490  crores

which is more than that of the appellant MSL.

26. No provision in the Code or Regulations has been brought to our

notice under which the bid of any Resolution Applicant has to match

liquidation value arrived at in the manner provided in Clause 35 of the

Insolvency  and  Bankruptcy  Board  of  India  (Insolvency  Resolution

Process  for  Corporate  Persons)  Regulations,  2016.   This  point  has

been dealt with in the case of  Essar Steel (supra). We have quoted

above the relevant passages from this judgment.  

27. It appears to us that the object behind prescribing such valuation

process  is  to  assist  the  CoC to  take  decision  on a  resolution  plan

properly.  Once,  a  resolution  plan  is  approved  by  the  CoC,  the

statutory mandate on the Adjudicating Authority under Section 31(1)

of  the  Code  is  to  ascertain  that  a  resolution  plan  meets  the

requirement of sub-sections (2) and (4) of Section 30 thereof. We, per

se, do not find any breach of the said provisions in the order of the

Adjudicating Authority in approving the resolution plan.

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28. The  Appellate  Authority  has,  in  our  opinion,  proceeded  on

equitable perception rather than commercial wisdom. On the face of

it, release of assets at a value 20% below its liquidation value arrived

at by the valuers seems inequitable.  Here, we feel the Court ought to

cede ground to the commercial wisdom of the creditors rather than

assess the resolution plan on the basis of quantitative analysis. Such is

the scheme of the Code. Section 31(1) of the Code lays down in clear

terms that  for final  approval of a resolution plan,  the Adjudicating

Authority has to be satisfied that the requirement of sub-section (2) of

Section  30  of  the  Code  has  been  complied  with.  The  proviso  to

Section  31(1)  of  the  Code  stipulates  the  other  point  on  which  an

Adjudicating  Authority  has  to  be  satisfied.  That  factor  is  that  the

resolution plan has provisions for its implementation. The scope of

interference by the Adjudicating Authority in limited judicial review

has been laid down in the case of  Essar Steel (supra), the relevant

passage (para 54) of which we have reproduced in earlier part of this

judgment. The case of MSL in their appeal is that they want to run the

company and infuse more funds. In such circumstances, we do not

think the Appellate Authority ought to have interfered with the order

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of the Adjudicating Authority in directing the successful Resolution

Applicant to enhance their fund inflow upfront.  

29. So far  as  the IA taken out  by the  MSL is  concerned,  in  our

opinion they cannot withdraw from the proceeding in the manner they

have approached this Court. The exit route prescribed in Section 12-A

is not applicable to a Resolution Applicant.  The procedure envisaged

in the said provision only applies to applicants invoking Sections 7, 9

and 10 of the code. In this case, having appealed against the NCLAT

order  with  the  object  of  implementing  the  resolution  plan,  MSL

cannot be permitted to take a contrary stand in an application filed in

connection with the very same appeal. Moreover, MSL has raised the

funds upon mortgaging the assets of the corporate debtor only.  In

such circumstances, we are not engaging in the judicial exercise of

determining the question as to whether after having been successful in

a CIRP, an applicant altogether forfeits their right to withdraw from

such process or not.

30. Certain allegations were made by the MSL over failure on the

part of the Resolution Professional in taking possession of the assets

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of the corporate debtor and subsequently in their failure in handing

over the same to MSL. These issues are factual. Mr. Neeraj Kishan

Kaul,  learned  senior  counsel  appearing  for  the  Resolution

Professional disputed such allegations. The order of the NCLAT does

not deal with this aspect of the controversy and we do not think we, in

exercise of our jurisdiction under Section 62 of the Code ought to

engage ourselves in determining that question.

31. We,  accordingly,  allow the  appeal  of  MSL and  set  aside  the

order  of  the  NCLAT  under  appeal  before  us.  The  order  of  the

Adjudicating Authority passed on 21st January 2019 is affirmed. MSL,

however,  shall  remit  additional  sum  of  Rs.50,72,237/-  to  the

Resolution  Professional  for  further  remittance  to  the  operational

creditors as per their dues. This sum has already been offered to the

operational creditors, as recorded in the impugned order. We dismiss

the I.A.No.115118 of 2019 taken out in connection with C.A.No.4242

of  2019.  C.A.No.4967-68  of  2019  are  also  allowed  on  the  same

reasoning. In view of our aforesaid findings and these directions, we

are  not  going  into  the  question  as  to  whether  any  illegality  was

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committed by MSL as regards change in  composition of Board of

Directors of the corporate debtor.

32. We,  accordingly,  direct  the  Resolution  Professional  to  take

physical possession of the assets of the corporate debtor and hand it

over to the MSL (appellant in C.A.No.4242 of 2019) within a period

of four weeks. The police and administrative authorities are directed

to render assistance to the Resolution Professional to enable him to

carry out these directions.

33. All  interim orders stand dissolved and connected applications

are disposed of.

34. There shall be no order as to costs.

……………………………. J. (Rohinton Fali Nariman)

……………………………. J. (Aniruddha Bose)

……………………………. J. (V. Ramasubramanian)

New Delhi. Dated: January 22, 2020.

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