NCLAT Affirms Dissenting Financial Creditors Entitled Only To Liquidation Value Of Secured Interest Under Section 30(2)(b) Of IBC

NCLAT Affirms Dissenting Financial Creditors Entitled Only to Liquidation Value of Secured Interest Under Section 30(2)(b) of IBC

The New Delhi bench of the National Company Law Appellate Tribunal (NCLAT), comprising Justice Rakesh Kumar Jain (Judicial Member) and Mr. Indevar Pandey (Technical Member), has affirmed that under Section 30(2)(b) of the Insolvency and Bankruptcy Code, 2016, a dissenting financial creditor is entitled only to the liquidation value of its secured interest rather than the total liquidation value of the corporate debtor. The Tribunal reiterated that the 'commercial wisdom' of the Committee of Creditors (CoC) is paramount and should not be interfered with unless similarly situated creditors are denied fair and equitable treatment.

The appellant, a secured financial creditor, dissented against the resolution plan filed by the Resolution Professional (RP) of Shubhkamna Buildtech Pvt. Ltd. (the corporate debtor). The resolution plan received approval with an 87.6% majority vote from the CoC. An application under Section 9 of the Code was admitted against the corporate debtor on November 26, 2018.

In the application submitted by the RP for the resolution plan's approval, the appellant objected as a dissenting financial creditor. Two primary objections were raised:

(i) the liquidation value of ₹82.66 crores reported by the RP was erroneous and should be rejected, and
(ii) the ₹79 lakh offered to the appellant was inadequate, asserting that the liquidation value entitled to the appellant should exceed ₹1.38 crores.

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 the CIRP Regulations. It stated, “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 appellant's grievance in the appeal was based on the wrongful allocation of ₹79 lakhs as the liquidation value based on the security interest held by the appellant rather than in proportion to the appellant's admitted claim. The appellant contended that the liquidation value of the corporate debtor was wrongfully diminished by registered valuers from ₹166.54 crores to a meager ₹82.66 crores under the RP's instructions. Counsel for the Appellant submitted that:

Its claim for secured financial debt of ₹10.21 crores was fully admitted. The adjudicating authority erred in holding that, as per Section 30(2)(b) of the Code, the liquidation value to be paid to a financial creditor pertains only to the secured interest of the financial creditor and not to the total liquidation value of the corporate debtor. Counsel for the Respondent argued that: The secured financial creditor cannot demand payment of the entire dues based on its security interest in the event of resolution plan approval. They referenced Paridhi Finvest Pvt. Ltd. v. Value Infratech Buyers Association & Anr., asserting that a security holder cannot insist upon payment as per security interest when the corporate debtor is resolved through a resolution plan.

They also cited India Resurgence ARC Pvt. Ltd. v. M/s Amit Metaliks Limited & Anr., stating that the dissenting financial creditor's entitlement is specified in the latter part of sub- section (2)(b) of Section 30 of the Code. Therefore, the amount payable to different classes or sub-classes of creditors, as per the provisions of the Code and related Regulations, reflects the commercial wisdom of the CoC, and a dissenting secured creditor cannot advocate for a higher payment based on the value of the security interest. Furthermore, they referenced ICICI Bank Limited v. BKM Industries Limited, emphasizing that there is no scope for distributing assets among financial creditors based on security interest, which was reiterated in Union Bank of India v. Resolution Professional of Kudos Chemie Ltd. & Ors.

They affirmed that under Section 30(2)(b) of the Code, the financial creditor who does not support the resolution plan is entitled to payment of debt that is not less than the amount payable to such creditor under Section 53(1) of the Code.The adjudicating authority is not empowered to assess the valuation of the corporate debtor's assets. Reliance was placed on Ramkrishna Forgins Limited v. Ravindra Loonkar, RP of Acil Limited & Anr., which stated that there is no scope for interference with the CoC's commercial decisions and therefore no room for substituting any commercial term of the resolution plan approved by the CoC. It was reiterated that the commercial wisdom of the CoC is paramount and sacrosanct.

In addressing the appellant's grievances, the tribunal referred to the Supreme Court's decision in Amit Metaliks, where a dissenting secured creditor with a minority voting share had contested the resolution plan on similar grounds. The dissenting creditor argued that, under Section 30(4) of the Code, the CoC could not have approved the resolution plan without considering the priority and value of the security interests of the creditors when determining the distribution manner for each creditor. The Supreme Court dismissed the appeal, stressing that the commercial wisdom of the CoC should not be interfered with unless creditors within the same class were denied equitable treatment.

The Tribunal also referenced Paridhi Finvest Pvt. Ltd., where the appellant contended it was not paid the amount corresponding to the liquidation value despite being a dissenting financial creditor entitled to such payment. The Court had dismissed that appeal as well. Additionally, the Tribunal noted that the question of 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. v. Ruchi Soya IndustriesLtd. & Anr. (2024).

Ultimately, the Tribunal dismissed the appeal.