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TMI Blog2022 (9) TMI 752X X X X Extracts X X X X X X X X Extracts X X X X ..... /2018. 2. Brief facts of the case giving rise to this Appeal are:- Oriental Bank of Commerce had filed a Section 7 Application under the Insolvency and Bankruptcy Code, 2016 (IBC in short) against the Corporate Debtor - M/s. Gupta Exim (India) Pvt. Ltd. which was admitted by the Adjudicating Authority vide Order dated 29th October, 2019. In the 'Corporate Insolvency Resolution Process' in 16th Meeting of 'Committee of Creditors', Resolution Plans were discussed. Revised Resolution Plans were submitted by the prospective Resolution Applicants. Resolution Plan was put to e-Vote between 07th August, 2021 and 16th August, 2021 and by majority of 97.97%, the Resolution Plan of 'Lotus Textiles' and Mr. Vijayant Mittal was approved. Appellant sent an Objection dated 16th August, 2021 to the distribution to the Appellant under the Resolution Plan. An I.A. No. 581 of 2021 was filed by the Appellant for direction to the Resolution Professional to distribute the proceeds of the Resolution Plan where following prayers were made: "It is therefore, most respectfully prayed that: 1. The present application may kindly be allowed and the directions be issued to the Respondent No. 1 modify/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ejecting the I.A. No. 581 of 2021. Learned Counsel for the Appellant submitted that Section 53(1)(b) of the Code does not talk about priority inter se secured creditors and subordination agreement provisions are required to be respected in the Liquidation Waterfall under Section 53 of the Code. Learned Counsel for the Appellant has placed reliance on report of the Insolvency Law Committee March, 2018 as well as the Statement of Objects and Reasons of the Insolvency and Bankruptcy Code (Amendment Bill), 2019. Learned Counsel for the Appellant has also placed reliance on two judgements of the Hon'ble Supreme Court and judgements of this Tribunal which shall be referred to while considering the submissions in detail. 4. Learned Sr. Counsel appearing for Respondent No. 1-Resolution Professional refuting the submissions of Learned Counsel for the Appellant submits that manner of distribution of the proceeds of the plan value is in accordance with Section 30(2)(b) of the Code. The Appellant is entitled for distribution as per value of the debt of the Appellant. There is no entitlement to claim distribution on the basis of value of security interest of the Appellant. The issue raised by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Appellant in support of his submission has placed reliance on the judgement of Hon'ble Supreme Court in "Jaypee Kensington Boulevard Apartments Welfare Association & Ors. Vs. NBCC (India) Ltd. & Ors.", [(2021) 1 SCC 401]. Hon'ble Supreme Court in the above case has occasion to consider the provisions of Section 30(2)(b) as well as the scope of judicial review. Learned Counsel for the Appellant placed reliance on paragraph 77, 77.1, 77.2, 77.3 which are to the following effect: "77. In the scheme of IBC, where approval of resolution plan is exclusively in the domain of the commercial wisdom of CoC, the scope of judicial review is correspondingly circumscribed by the provisions contained in Section 31 as regards approval of the Adjudicating Authority and in Section 32 read with Section 61 as regards the scope of appeal against the order of approval. 77.1. Such limitations on judicial review have been duly underscored by this Court in the decisions above-referred, where it has been laid down in explicit terms that the powers of the Adjudicating Authority dealing with the resolution plan do not extend to examine the correctness or otherwise of the commercial wisdom exercised b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the financial creditors." 10. The law as laid down by the Apex Court is very clear. If the plan does not conform to Section 30(2)(b), the judicial review to the limited extent, i.e. to the extent the plan is in violation of the statutory provision is permissible. There cannot be any quarrel to the preposition of the law laid down by the Apex Court in the above case. In a given set of facts, if requisite parameters as laid down in Section 30(2) are not complied with, the Adjudicating Authority does not lack jurisdiction to send the Resolution Plan back to the Committee of Creditors for resubmission after satisfying the parameter. The question to be considered in the present case is as to whether distribution as approved by the CoC to the Appellant as per voting share of the Appellant contravenes the Section 30(2)(b) as contended by Learned Counsel for the Appellant. 11. Expression "debt" is defined in Section 3(11) in following words: "(11) "debt" means a liability or obligation in respect of a claim which is due from any person and includes a financial debt and operational debt;" 12. In the CIRP Process, Appellant has filed claim which was admitted by the Resolution Professi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ded in Section 53(1)(ii). The debt owed to a secured creditor is a debt which is relatable to his claim as admitted in CIRP Process. The claim/debt of a secured financial creditor which is admitted in CIRP Process of a secured creditor is a fixed amount determined in CIRP process as reflected in Information Memorandum prepared by the Resolution Professional. The debt owed to a secured creditor is not the value of security of a secured creditor. The value of security of secured creditor is not the debt owed to a secured creditor in the CIRP Process. Section 53(1) does not contemplate distribution as per value of security of a secured creditor. Submission of the Appellant that he is entitled to distribution of the proceeds of the plan value as per value of security possessed by him is not in accord with the legislative scheme as delineated in Section 53(1) of the Code. The above issue has been decided by this Appellate Tribunal in Company Appeal (AT) Ins. No. 665 of 2022 "Union Bank of India Vs. Resolution Professional of M/s Kudos Chemie Ltd. & Ors.". In the above case also, the Financial Creditor of the Corporate Debtor has filed an Application seeking direction to distribute the r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be paid to it with reference to the value of the security interest. Paragraph 13.1 of the judgment is as follows:- "13.1.Thus, what amount is to be paid to different classes or sub-classes of creditors in accordance with provisions of the Code and the related Regulations, is essentially the commercial wisdom of the Committee of Creditors and a dissenting secured creditor like the appellant cannot suggest a higher amount to be paid to it with reference to the value of the security interest."" 15. The Judgment of the Hon'ble Supreme Court in Civil Appeal No. 1700/2021 "India Resurgence" (supra) was a case where Hon'ble Supreme Court had occasion to consider where also the Financial Creditor has objected to distribution contending that distribution should be as per value of the security interest held by the financial creditor. Hon'ble Supreme Court after referring to Section 30(2) and submission of the Appellant that distribution ought to have been as per value of security interest expressly rejected the submission. In paragraph 13, 13.1 and 14.2, following was laid down: "13. The repeated submissions on behalf of the appellant with reference to the value of its security interes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce with provisions of the Code and the related Regulations, is essentially the commercial wisdom of the Committee of Creditors; and a dissenting secured creditor like the appellant cannot suggest a higher amount to be paid to it with reference to the value of the security interest. .............. 14.2. The extent of value receivable by the appellant is distinctly given out in the resolution plan i.e., a sum of INR 2.026 crores which is in the same proportion and percentage as provided to the other secured financial creditors with reference to their respective admitted claims. Repeated reference on behalf of the appellant to the value of security at about INR 12 crores is wholly inapt and is rather ill-conceived." 16. Learned Counsel for the Appellant sought to contend that two Judge Bench of "India Resurgence" (supra) does not take into consideration law laid down by the Hon'ble Supreme Court in three Judge Bench in "Jaypee Kensington" (supra). The ratio of the Judgment of two Judge Bench in "India Resurgence" is not in any manner at variance to the law laid down by the three Judge Bench in "Jaypee Kensington". 17. Learned Counsel for the Appellant has relied on report of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rded by the liquidator. However, agreements inter-se secured creditors do not disturb the equal ranking sought to be provided by section 53(1)(b) and therefore do not fall within the ambit of section 53(2). The Committee felt that there was no requirement for an amendment to the Code required since a plain reading of section 53 was sufficient to establish that valid inter-creditor and subordination provisions are required to be respected in the liquidation waterfall under section 53 of the Code." 18. The Committee ultimately did not suggest any amendment in Section 53 of the Code. The above report of the Insolvency Law Committee in no manner support the submission of Learned Counsel for the Appellant that distribution under Section 53(1) ought to be on basis of value of security of financial creditor and not on basis of debt owed to secured creditor. 19. Learned Counsel for the Appellant has referred to the Statement of Objects and Reasons of the Insolvency and Bankruptcy Code (Amendment Bill) 2019 by which amendments were brought in Section 30(2)(b). The Statement of Objects and Reasons noticing various difficulties to fill critical gaps, amendments were brought. In paragraph 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3(1)(b)(ii) should be applicable only to the extent of the value of the security interest that is relinquished by the secured creditor. The said observation was for different purpose i.e. in reference to priority which with respect to debt owed to secured creditor, in the event secured creditor relinquishes the security in the manner set out in Section 52. The Committee in its report nowhere even suggested that secured financial creditor is entitled to distribution as per value of security. 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 which is canvassed before us. 22. Learned Counsel for the Appellant has also referred to the Judgment of Hon'ble Supreme Court in "ICICI Bank Vs. SIDCO Leathers Ltd. & Ors.", [(2006) 10 SCC 452] in which the Hon'ble Supreme Court has dealt with Section 529 of the Companies Act, 1956. The above judgement was on Section 529 of t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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