TMI Blog2022 (9) TMI 752X X X X Extracts X X X X X X X X Extracts X X X X ..... asons by which amendments in Section 30(2)(b) has been made, makes it clear that entitlement of dissenting financial creditor is the liquidation value of their debt which also clearly negate the submissions raised by the Learned Counsel for the Appellant. The conclusion of the committee is that the priority under Section 53(1)(b)(ii) shall be only to the extent of security interest of the secured creditor. The secured creditor cannot claim priority under Section 53(1)(b)(ii) of the whole debt where only part of the debt is secured, the above report of the Committee in no manner helps the appellant to support the submission. The decision of the Committee of Creditors and the Adjudicating Authority deciding to distribute the proceeds of the plan value as per voting share of the secured creditor in no manner contravenes the provisions of Section 30(2)(b) of the Code - appeal dismissed. - Company Appeal (AT) (Insolvency) No. 570 of 2022 - - - Dated:- 16-9-2022 - [ Justice Ashok Bhushan ] Chairperson And [ Mr. Barun Mitra ] Member ( Technical ) For the Appellant : Mr. N. P. S. Chawla and Ms. Kinjal Goyal, Advocates For the Respondent : Mr. Krishnendu Datta, Sr. Advoc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Appellant is entitled to 2.03% i.e. Rs. 1,65,47,078/-. The case of the Appellant set up in the Application is that he is entitled for his distribution of plan amount as per value of the security interest of the Appellant. The Application was objected by the Resolution Professional. The Adjudicating Authority by the Impugned Order dated 17th March, 2022 rejected the I.A. No. 581 of 2021 upholding the decision of the CoC for distribution of proceeds of the Resolution Plan as per the voting share. Appellant aggrieved by the said Order, has come up in this Appeal. 3. Shree N.P.S Chawla, Learned Counsel for the Appellant submits that the Appellant has first charge on two properties of the Corporate Debtor. The Liquidation Value of the securities exclusively charged to Appellant is Rs. 5.64 Crores which is equivalent to 6.93% of the Liquidation Value of the assets of the Corporate Debtor. Voting share of the Appellant is 2.03% and voting share of the Punjab National Bank is 97.7%. It is submitted that distribution of proceeds of the Resolution Plan ought to have been in accordance with the value of the security interest of the Appellant and not as per the value of the voting share. It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Learned Counsel for the Appellant contends that distribution of proceeds of the Resolution Plan is in accordance with the debt value of the secured creditors as per Section 30(2)(b) of the Code. The Appellant is not entitled to claim distribution on the basis of value of the security interest of Appellant. The commercial wisdom/decision of the CoC approving the distribution in the Resolution Plan cannot be allowed to be questioned by the dissenting financial creditor. 6. We have considered the submissions of Learned Counsel for the parties and have perused the record. 7. The only question which arises for consideration in the present Appeal is as to whether the Appellant-dissenting Financial Creditor is entitled to claim distribution of proceeds of the plan as per value of the security interest of the Appellant or as per the debt of the Appellant (voting share). 8. The Appellant is one of the members of the CoC, the other member of the CoC being Punjab National Bank, voting share of both the Appellant and Punjab National Bank are as follows: Name of CoC Member Voting Share (%) Punjab National Bank ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g financial creditors; (d) for management of affairs of corporate debtor after approval of the resolution plan; and (e) implementation and supervision of the resolution plan. 77.2. The limitations on the scope of judicial review are reinforced by the limited ground provided for an appeal against an order approving a resolution plan, namely, if the plan is in contravention of the provisions of any law for the time being in force; or there has been material irregularity in exercise of the powers by the resolution professional during the corporate insolvency resolution period; or the debts owed to the operational creditors have not been provided for; or the insolvency resolution process costs have not been provided for repayment in priority; 171 or the resolution plan does not comply with any other criteria specified by the Board. 77.3. The material propositions laid down in Essar Steel (supra) on the extent of judicial review are that the Adjudicating Authority would see if CoC 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng share shall be determined on the basis of the financial debts owed to them. 13. Section 53(1) which is relevant in the present case is as follows: 53. Distribution of assets. (1) Notwithstanding anything to the contrary contained in any law enacted by the Parliament or any State Legislature for the time being in force, the proceeds from the sale of the liquidation assets shall be distributed in the following order of priority and within such period and in such manner as may be specified, namely :- (a) the insolvency resolution process costs and the liquidation costs paid in full; (b) the following debts which shall rank equally between and among the following :- (i) workmen s dues for the period of twenty-four months preceding the liquidation commencement date; and (ii) debts owed to a secured creditor in the event such secured creditor has relinquished security in the manner set out in section 52; (c) wages and any unpaid dues owed to employees other than workmen for the period of twelve months preceding the liquidation commencement date; (d) financial debts owed to unsecured creditors; (e) the following dues shall rank equally betwe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Judgement. This Tribunal laid down as under: 4. The objection was raised by the Appellant Bank and it wanted that distribution should be done as per the Option-3. The CoC by majority having taken decision to distribute the amount as per Option-1 by 97.61% vote, we see no reason to take a different view from one which has been taken by the Adjudicating Authority. The Adjudicating Authority in paragraph 40 has made following observations:- 40. Both these contentions of learned counsel for the applicant are not tenable because the distribution of the amount was made by the Committee of Creditors resting on total dues of voting share of individual creditors which is neither whimsical nor arbitrary in any manner. Although the applicant gave a dissenting vote for approval of the Plan, based on the reason that distribution of resolution fund was discriminatory against it and despite the plea that it was entitled to the equal share in regard to the distribution of the resolution fund on the value of the assets of the corporate debtor as security. However, the committee of creditors, deciding to go with option no.1 i.e. distribution of plan amount as per claims admitted, has appr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ational creditors something more than was given earlier as it is the higher of the figures mentioned in sub-clauses (i) and (ii) of sub-clause (b) that is now to be paid as a minimum amount to operational creditors. The same goes for the latter part of sub-clause (b) which refers to dissentient financial creditors. Ms Madhavi Divan is correct in her argument that Section 30(2)(b) is in fact a beneficial provision in favour of operational creditors and dissentient financial creditors as they are now to be paid a certain minimum amount, the minimum in the case of operational creditors being the higher of the two figures calculated under sub-clauses (i) and (ii) of clause (b), and the minimum in the case of dissentient financial creditor being a minimum amount that was not earlier payable. As a matter of fact, pre-amendment, secured financial creditors may cram down unsecured financial creditors who are dissentient, the majority vote of 66% voting to give them nothing or next to nothing for their dues. In the earlier regime it may have been possible to have done this but after the amendment such financial creditors are now to be paid the minimum amount mentioned in sub-section (2). Ms ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ommittee Report is referred to which states in following words 21.5Lastly, it was deliberated whether inter-creditor agreements if not disregarded for the liquidation waterfall in section 53 of the Code, may result in secured creditors, especially those holding a first charge to prefer liquidation over resolution. It was suggested to the Committee to clarify whether inter-creditor agreements hold good for distribution of proceeds on liquidation under section 53 in order to promote resolution over liquidation. The Committee, as discussed in the context of the ICICI case above, noted that it may not be prudent to take away a valuable property right vested with creditors. The Committee felt that generally all secured financial creditors whether first charge or secondary charge holders are sophisticated entities which grant loans after exercising due-diligence and are presumed to be able to evaluate their interests and risks sufficiently. Moreover, this may negatively impact the credit market and discourage banks and other financial creditors to grant big loans which are more often than not granted against property or other valuable collateral as they shall have no protection in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been distributed in accordance with the order of priorities in section 53 of the Code, whichever is higher; (ii) the financial creditors who do not vote in favour of the resolution plan shall receive an amount that is not less than the liquidation value of their debt; (iii) the provisions shall apply to the corporate insolvency resolution process of a corporate debtor (A) where a resolution plan has not been approved or rejected by the Adjudicating Authority; or (B) an appeal is preferred under section 61 or 62 or such appeal is not time barred under any provision of law for the time being in force; or (C) where a legal proceeding has been initiated in any court against the decision of the Adjudicating Authority in respect of a resolution plan; .. 20. When we look into above statement of objects and reasons, it is made clear that financial creditors who do not vote in favour of the resolution plan shall receive an amount that is not less than the liquidation value of their debt. The above statement of objects and reasons also makes it clear that the entitlement of dissenting financial creditor is to receive liquidation value of their debt an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Hon ble Supreme Court vide its Order dated 29th June, 2021 in Civil Appeal Diary No. 11060/2021. Learned Counsel for the Respondents have not placed reliance on the Judgement of this Tribunal in Technology Development Board (supra). 24. The Judgement of this Tribunal in Company Appeal (AT) Ins. No. 547 of 2022 in Oriental Bank of Commerce Vs. Anil Anchalia Anr. decided on 26th May, 2022 also does not support the submission of Learned Counsel for the Appellant. It was held that dissenting financial creditor is entitled for distribution as per Section 53(1). The claim of the dissenting Financial Creditor that he is entitled to receive the entire amount received from property which was secured with the Financial Creditor was rejected relying on the Judgment of the Hon ble Supreme Court in India Resurgence (supra). 25. In view of the foregoing discussion, we do not find any error in the Order dated 17.03.2022 of the Adjudicating Authority rejecting I.A. No. 581 of 2021 filed by the Appellant. The decision of the Committee of Creditors and the Adjudicating Authority deciding to distribute the proceeds of the plan value as per voting share of the secured creditor in no man ..... X X X X Extracts X X X X X X X X Extracts X X X X
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