Maharashtra Seamless Limited vs Padmanabhan Venkatesh on 22 January, 2020


Supreme Court of India

Maharashtra Seamless Limited vs Padmanabhan Venkatesh on 22 January, 2020

Author: Aniruddha Bose

Bench: Rohinton Fali Nariman, Aniruddha Bose, V. Ramasubramanian

                                                             (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




                                               JUDGMENT

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
Signature Not Verified

NATARAJANof 2019. The total debt of the corporate debtor was Rs. 1897 crores,
Digitally signed by R
Date: 2020.01.22
17:21:17 IST
Reason:

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 28 th 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 28 th 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 12 th

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 9 th
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

15
was payable within 30 days of the approval of the
plan.

26. Therefore, according to counsel for 4 th
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

18
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

23
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

24
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)

25
“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
26
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

27
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:-

28

“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)

30

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

31

(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:

32

(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

33
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.

34

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

35
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

36
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

37
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.

38



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