MAHARASHTRA SEAMLESS LIMITED versus PADMANABHAN VENKATESH & ORS.
[2020] 2 S.C.R. 1157, Supreme Court of India, 2020
Outcome: Appeal(s) allowed (Granted)
Segment: Ratio
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MAHARASHTRA SEAMLESS LIMITED
v.
PADMANABHAN VENKATESH & ORS.
(Civil Appeal No. 4242 of 2019 Etc.)
JANUARY 22, 2020
[ROHINTON FALI NARIMAN, ANIRUDDHA BOSE
AND V. RAMASUBRAMANIAN, JJ.]
Insolvency and Bankruptcy Code, 2016:
s. 31 – Corporate Insolvency Resolution Process (CIRP) –
Resolution plan which provided upfront payment of Rs. 477 crores
was approved by the Adjudicating Authority – Appellate Tribunal
directed the successful resolution applicant to increase the upfront
payment amount of Rs. 477 crores to Rs. 597.54 crores i.e. equal to
average liquidation value – Appeal to Supreme Court – Held: There
is no provision in the Code or the Regulations which requires that
bid of a resolution applicant has to match liquidation value – The
Adjudicating Authority has not committed breach of provisions u/s.
31 – Appellate Authority ought not to have interfered with the order
of the Adjudicating Authority in directing the successful resolution
application to enhance their fund inflow upfront.
s. 12-A – Applicability of – Held: The exit route prescribed
u/s. 12-A is not applicable to resolution applicant – The procedure
envisaged therein only applies to applicants invoking ss. 7, 9 and
10 of the Code.
Allowing the appeals, the Court
HELD: 1.1 No provision in the Insolvency and Bankruptcy
Code, 2016 or Insolvency and Bankruptcy Board of India
(Insolvency Resolution Process for Corporate Persons)
Regulations, 2016 has been brought to the notice of the Court
under
which the bid of any Resolution Applicant has to match
liquidation value arrived at in the manner provided in Clause 35
of the Regulations. [Para 26][1179 F-G]
1.2 The object behind prescribing such valuation process
is to assist the Committee of Creditors (CoC) to take decision
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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. Thus, there is no breach of the said provisions in the
order of the Adjudicating Authority in approving the resolution
plan. [Para 27][1179 G-H; 1180 A-B]
1.3 The Appellate Authority has 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, 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 Appellate Authority ought not to have
interfered with the order of the Adjudicating Authority in directing
the successful Resolution Applicant to enhance
their fund inflow
upfront. [Para 28][1180 B-F]
2. So far as the IA taken out by the MSL is concerned, 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 the present 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, the Court is 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. [Para 29][1180 F-H]
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3. The Resolution Professional is directed to take physical
possession of the assets of the corporate debtor and hand it over
to the resolution applicant 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. [Para 32][1181 E-F]
Committee of Creditors of Essar Steel India Limited v.
Satish Kumar Gupta (2019) SCC OnLine SC 1478 –
relied on.
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 4242
of 2019.
From the Judgment and Order dated 08.04.2019 of the National
Company Law Appellate Tribunal in Company Appeal (AT) (Insolvency)
No. 128 of 2019.
With
Civil Appeal Nos. 4967-4968 of 2019.
Kapil Sibal, Gopal Singh, Dr. Abhishek Manu Singhvi, K.V.
Viswanathan, Rana Mukherji, Neeraj Kishan Kaul, Anupam Lal Das,
Deepak Nargolkar, Sr. Advs., Ajay Bhargava, Mrs. Vanita Bhargava,
Ms. Wamika Trehan, Aseem Chaturvedi, Vansa Sethi (for M/s. Khaitan
& Co.), Varghese Thomas, Manish Jha, Raghav Sabharwal, Divyam
Agarwal, L. Nidhiram Sharma, Apoorv Singhal, G. Ramakrishna Prasad,
Suyodhan Byrapaneni, Ms. Filza Moonis, Mohd. Wasay Khan, Bharat
J. Joshi, John Mathew, Karthik S.D., Aditya Verma, Shrey Patnaik,
Utkarsh Joshi, Varun, Sinha Shrey, S.P. Singh Chawla, Pratik Som, Aditya
Shankar, Shubham Bansal, Arjun Singh Bhati, T.N. Durga Prasad, Soumik
Ghosal, Gaurav Singh, Advs. for the appearing parties..
The Judgment of the Court was delivered by
ANIRUDDHA BOSE, J.
1. 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 entities of Deutsche
MAHARASHTRA SEAMLESS LIMITED v. PADMANABHAN
VENKATESH & ORS.
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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
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:-
“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
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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 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,
MAHARASHTRA SEAMLESS LIMITED v. PADMANABHAN
VENKATESH & ORS. [ANIRUDDHA BOSE, J. ]
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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 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 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.
MAHARASHTRA SEAMLESS LIMITED v. PADMANABHAN
VENKATESH & ORS. [ANIRUDDHA BOSE, J. ]
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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 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 9th 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 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
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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 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 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
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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 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.
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
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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
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
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.
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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;
(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-
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(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
(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:
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,
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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.
(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:-
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“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
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 debtor are removed and replaced by
entrepreneurs. When, therefore, a resolution plan takes off
and the corporate debtor is brought back into the economic
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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)
“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
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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 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 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
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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:-
 “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
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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 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)
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
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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
(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.
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(2) Liquidation value shall be determined in the following manner:
(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 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
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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.
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 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.
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30. Certain allegations were made by the MSL over failure on the
part of the Resolution Professional in taking possession of the assets 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 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.
Kalpana K. Tripathy
Appeals allowed.
MAHARASHTRA SEAMLESS LIMITED v. PADMANABHAN
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