Delve into the intricate legal analysis of dissenting financial creditors’ security interest in resolution plans. This summary highlights the importance of the court’s evaluation of commercial wisdom exercised by the Committee of Creditors, restrictions on judicial review, and the role of the appellate authority in ensuring legal compliance. Discover how the court navigates the complexities of resolution plans, focusing on fairness and equitable treatment for all creditors involved.
Facts
- Adjudicating Authority examined the salient features of the resolution plan.
- The plan was found to be feasible and viable with judicious distribution of financial bids by CoC to stakeholders.
- Resolution plan approved by 95.35% voting share of financial creditors.
- Provisions made for payment of debts, management of the Corporate Debtor, and implementation of the plan.
- No waiver of extinguishments in violation of the Code or existing laws.
- Observation that IBC aims at resolution and revival of distressed companies.
- RP informed appellant that valuation was done by registered valuers appointed by erstwhile IRP
- Appellant expressed reservations on the share proposed in resolution plan
- Appellant remained a dissentient financial creditor
- Dissention noted in CoC meeting on 31.07.2020
- Religare Finvest/India Resurgence ARC representative inquired about lower share in resolution plan compared to security interest held
- Questions raised about fair market value and liquidation value of the Corporate Debtor
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Arguments
- Mr Shakti suggested liquidation as the best option for realizing security interest.
- The CoC cannot approve a plan that does not align with the provisions of the Code.
- The appeal lacked substance and was not deemed worthy of admission.
- The legal requirements focus on Section 30 of the Code regarding resolution plan submission, contents, CoC approval, and Adjudicating Authority approval.
- Appellant’s main objection to the resolution plan was the low offer compared to the security valuation.
- The RP highlighted that liquidation might benefit one creditor but harm other secured lenders with majority stake.
- Appellant contends that CoC failed to consider priority and value of security interest of creditors when approving resolution plan.
- Appellant argues that amendment to Section 30(4) of IBC requires CoC to consider order of priority among creditors, including security interest of secured creditors.
- Appellant, as dissenting financial creditor, asserts that approved resolution plan is not feasible and viable as it did not account for the value of the secured asset in favor of the appellant.
- Main argument of the appellant is centered around Section 30(4) of the Code.
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Analysis
- The limitations on judicial review in relation to the exercise of commercial wisdom by the Committee of Creditors have been underscored. The judicial review is restricted to ensuring fair and equitable treatment for creditors in a similar situation.
- Amendments to Section 30(4) of the Insolvency and Bankruptcy Code allow the Committee of Creditors to consider the value of security interest of a Secured Creditor when approving a Resolution Plan.
- The role of the Adjudicating Authority and the Appellate Authority is limited to verifying the compliance with legal provisions and other specified requirements in a Resolution Plan, such as payment of insolvency resolution process costs and debts of creditors.
- The commercial wisdom exercised by the Committee of Creditors is crucial in deciding the feasibility and viability of a Resolution Plan, along with the distribution of payments among creditors according to priority and security interest.
- The Appellate Authority and the Adjudicating Authority do not assess Resolution Plans based on equitable perceptions or quantitative analysis, but rather focus on ensuring legal compliance and fairness in distribution.
- The amended Section 30(4) provides additional guidance for the Committee of Creditors in making informed decisions on Resolution Plans, emphasizing fairness in distribution among similarly situated creditors.
- In Jaypee Kensington case, the dissenting financial creditor is entitled to receive payment as per their entitlement, which may include enforcing security interest.
- The commercial wisdom of Committee of Creditors is crucial in the consideration and approval of a resolution plan.
- Judicial review of the resolution plan approval is limited by the provisions of the Insolvency and Bankruptcy Code.
- The dissenting financial creditor with security interest can enforce it to receive the value to the extent of their entitlement.
- The Code allows flexibility for the Committee of Creditors to approve or reject a resolution plan based on different factors, including the rights of various creditors.
- Enforcing security interest by a dissenting financial creditor counts as ‘payment’ towards their entitlement under the Code and satisfies the requirements of Section 30(2)(b).
- Resolution professional to examine each resolution plan received to confirm certain provisions.
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- The objective of the Code is to first ensure resolution of distressed assets before liquidation.
- The submissions made on behalf of the appellant do not merit acceptance and are required to be rejected.
- The appeal fails and stands dismissed.
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Case Title: INDIA RESURGENCE ARC PRIVATE LIMITED Vs. M/S. AMIT METALIKS LIMITED (2021 INSC 296)
Case Number: C.A. No.-001700 / 2021
