MAHARASHTRA SEAMLESS LIMITED versus PADMANABHAN VENKATESH & ORS.

[2020] 2 S.C.R. 1157

MAHARASHTRA SEAMLESS LIMITED

PADMANABHAN VENKATESH & ORS.

(Civil Appeal No. 4242 of 2019 Etc.)

JANUARY 22, 2020

[ROHINTON FALI NARIMAN, ANIRUDDHA BOSEAND V. RAMASUBRAMANIAN, JJ.]

Insolvency and Bankruptcy Code, 2016:

s. 31 – Corporate Insolvency Resolution Process (CIRP) –Resolution plan which provided upfront payment of Rs. 477 croreswas approved by the Adjudicating Authority – Appellate Tribunaldirected the successful resolution applicant to increase the upfrontpayment amount of Rs. 477 crores to Rs. 597.54 crores i.e. equal toaverage liquidation value – Appeal to Supreme Court – Held: Thereis no provision in the Code or the Regulations which requires thatbid of resolution applicant has to match liquidation value – TheAdjudicating Authority has not committed breach of provisions u/s.31 – Appellate Authority ought not to have interfered with the orderof the Adjudicating Authority in directing the successful resolutionapplication to enhance their fund inflow upfront.

s. 12-A – Applicability of – Held: The exit route prescribedu/s. 12-A is not applicable to resolution applicant – The procedureenvisaged therein only applies to applicants invoking ss. 7, 9 and10 of the Code.

Allowing the appeals, the Court

HELD: 1.1 No provision in the Insolvency and BankruptcyCode, 2016 or Insolvency and Bankruptcy Board of India(Insolvency Resolution Process for Corporate Persons)Regulations, 2016 has been brought to the notice of the Courtunder which the bid of any Resolution Applicant has to matchliquidation value arrived at in the manner provided in Clause 35of the Regulations. [Para 26][1179 F-G]

1.2 The object behind prescribing such valuation processis to assist the Committee of Creditors (CoC) to take decision

Aon resolution plan properly. Once, resolution plan is approvedby the CoC, the statutory mandate on the Adjudicating Authorityunder Section 31(1) of the Code is to ascertain that resolutionplan meets the requirement of sub-sections (2) and (4) of Section30 thereof. Thus, there is no breach of the said provisions in theorder of the Adjudicating Authority in approving the resolutionBplan. [Para 27][1179 G-H; 1180 A-B]

1.3 The Appellate Authority has proceeded on equitableperception rather than commercial wisdom. On the face of it,release of assets at value 20% below its liquidation value arrivedat by the valuers seems inequitable. Here, the Court ought toCcede ground to the commercial wisdom of the creditors ratherthan assess the resolution plan on the basis of quantitativeanalysis. Such is the scheme of the Code. Section 31(1) of theCode lays down in clear terms that for final approval of resolutionplan, the Adjudicating Authority has to be satisfied that theDrequirement of sub-section (2) of Section 30 of the Code has beencomplied with. The proviso to Section 31(1) of the Code stipulatesthe other point on which an Adjudicating Authority has to besatisfied. That factor is that the resolution plan has provisionsfor its implementation. The Appellate Authority ought not to haveinterfered with the order of the Adjudicating Authority in directingEthe successful Resolution Applicant to enhance their fund inflowupfront. [Para 28][1180 B-F]2. So far as the IA taken out by the MSL is concerned, theycannot withdraw from the proceeding in the manner they haveapproached this Court. The exit route prescribed in Section 12-FA is not applicable to Resolution Applicant. The procedureenvisaged in the said provision only applies to applicants invokingSections 7, 9 and 10 of the Code. In the present case, havingappealed against the NCLAT order with the object ofimplementing the resolution plan, MSL cannot be permitted toGtake contrary stand in an application filed in connection withthe very same appeal. Moreover, MSL has raised the funds uponmortgaging the assets of the corporate debtor only. In suchcircumstances, the Court is not engaging in the judicial exerciseof determining the question as to whether after having beensuccessful in CIRP, an applicant altogether forfeits their rightHto withdraw from such process or not. [Para 29][1180 F-H]

3. The Resolution Professional is directed to take physicalpossession of the assets of the corporate debtor and hand it overto the resolution applicant within period of four weeks. Thepolice and administrative authorities are directed to renderassistance to the Resolution Professional to enable him to carryout 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. 4242of 2019.

From the Judgment and Order dated 08.04.2019 of the NationalCompany 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, DivyamAgarwal, L. Nidhiram Sharma, Apoorv Singhal, G. Ramakrishna Prasad,Suyodhan Byrapaneni, Ms. Filza Moonis, Mohd. Wasay Khan, BharatJ. Joshi, John Mathew, Karthik S.D., Aditya Verma, Shrey Patnaik,Utkarsh Joshi, Varun, Sinha Shrey, S.P. Singh Chawla, Pratik Som, AdityaShankar, Shubham Bansal, Arjun Singh Bhati, T.N. Durga Prasad, SoumikGhosal, 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 ResolutionProcess (CIRP) involving United Seamless Tubulaar Private Limited,the corporate debtor. The successful Resolution Applicant, MaharashtraSeamless Ltd. (MSL) is the appellant in C.A. No. 4242 of 2019. Thetotal debt of the corporate debtor was Rs. 1897 crores, out of whichRs.1652 crores comprised of term loans from two entities of Deutsche

ABank. These are DB International (Asia) Limited and Deutsche BankAG, Singapore Branch. There was also debt on account of workingcapital borrowing of Rs. 245 crores from another bank, being IndianBank. Said Indian Bank is the initiator of the CIRP, who filed anapplication under Section 7 of the Insolvency and Bankruptcy Code,2016 (the Code). DB International (Asia Ltd.) is the appellant in C.A.BNo.4967-68 of 2019. concern by the name of UMW had providedcorporate guarantee to Deutsche Bank, Singapore as collateral to thesaid term loan. The Adjudicating Authority, the National Company LawTribunal, Hyderabad Bench (NCLT) by an order passed on 21[st] January,2019 approved the resolution plan submitted by MSL in an applicationCfiled by the Resolution Professional. This resolution plan included anupfront payment of Rs. 477 crores. Ancillary directions were issued bythe Adjudicating Authority while giving approval to the said resolutionplan with the finding that the said plan met all the requirements of Section30(2) of the Code. This order was carried up in appeal before the NationalCompany Law Appellate Tribunal (NCLAT), being the AppellateDAuthority under the Code by two persons who were parties before theNCLT. They were one of the promoters of the corporate debtor,Padmanabhan Venkatesh and the Indian Bank. These appeals wereregistered as Company Appeal (AT) (Insol.) Nos. 128 & 247 of 2019.The appellant in Company Law (AT) (Insol.) No. 128/2019 was saidEPadmanabhan Venkatesh. The appellant in Company Law (AT) (Insol.)No. 247 of 2019 was the Indian Bank. These two appeals were heardwith another appeal filed by the successful Resolution Applicant (MSL)against an order of the Adjudicating Authority passed on 28[th] February2019. The MSL’s appeal was registered as Company Appeal (AT) (Insol.)No. 220 of 2019.F

2. This appeal by MSL was in connection with I.A. No. 125 of2019 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 andadministrative authorities for effective implementation of the resolutionplan. Grievance of MSL in that proceeding was that they were not beingGgiven access to the assets of the corporate debtor. The AdjudicatingAuthority, while disposing of the application, directed, inter-alia:-

“20. Even though appeal is preferred by Respondent No.5 to theHon’ble NCLAT, there is no stay and the appeal is coming up forhearing on 07.03.2019. The implementation of this Plan is subject

MAHARASHTRA SEAMLESS LIMITED v. PADMANABHANVENKATESH & ORS. [ANIRUDDHA BOSE, J. ]

to the outcome of the Appeal. Therefore, direction can be givento the concerned to extend cooperation to the Applicant herein inimplanting the Resolution Plan of the Corporate Debtor Companyand it is only subject to the outcome of the Appeal which is pendingbefore Hon’ble NCLAT.

21. direction cannot be given to the Superintendent of Policeand Collector because by the date of Application, the Applicanthas not deposited the bid amount. Therefore, at the first instancedirection can be given to all concerned of the Corporate DebtorCompany to extend all cooperation to the Applicant. It is alwaysopen to the Applicant to approach the Tribunal for suitable direction,if so required.

22. In the result, Application is disposed of directing the concernedof the Corporate Debtor Company to extend all cooperation tothe Applicant herein in implementing the Resolution Plan and it isopen to Resolution Applicant to approach the Tribunal for necessarydirection subsequent to this order, if so required.” (quoted verbatim)

3. In the common order dated 8[th] April 2019 in the aforesaidappeals, the Appellate Tribunal, inter-alia, observed and held:-

“45. ‘M/s. Maharashtra Seamless Ltd.’ (‘Successful ResolutionApplicant’) has taken plea that out of verified claims ofRs.2,02,88,948/-, and is willing to pay the verified ‘OperationalCreditors’ at the same percentage as that of the ‘FinancialCreditors’ i.e. 25% which shall be paid within 30 days of the‘Successful Resolution Applicant’ getting clear and unfetteredpossession of and rights to the ‘Corporate Debtor’. The 25% ofverified claim of Rs.2,02,88,948/- is Rs. 50,72,237/- approximately,therefore, even if such offer is accepted then it will beRs.577,50,237/- i.e. Rs.578 Crores approximately, which is alsomuch less than the liquidation value of Rs.597.54 Crores.

46. Taking into consideration the nature of the case, we are of theview that ‘M/s. Maharashtra Seamless Ltd.’ should increaseupfront payment of Rs.477 Crores as proposed to the ‘FinancialCreditors’, ‘Operational Creditors’ and other Creditors to Rs.597.54Crores by paying additional Rs. 120.54 Crores approximately tomake it at par with the average liquidation value of Rs.597.54Crores. If the upfront amount is increased to Rs.597.54 Crores,

Athe total amount should be distributed amongst the ‘FinancialCreditors’ and the ‘Operational Creditors’ at same ratio assuggested. As per suggestion of the ‘Resolution Applicant’, the‘Operational Creditors’ can be given same percentage of amountas allocated to the ‘Financial Creditors’.

B47. If the ‘Resolution Applicant’ fails to undertake the payment ofadditional amount of Rs.120.54 Crores in addition to Rs.477 Croresthereby raising it to Rs.597.54 Crores (total) and deposit the amountin the Escrow Account within 30 days in such case, the impugnedorder of approval of the ‘Resolution Plan’ be treated to be setaside. Thereafter, the Adjudicating Authority will pass appropriateCorder in accordance with law.” (quoted verbatim)

4. So far as the appeal of MSL before the Appellate Authority isconcerned, the same had direct correlation with the other two appeals.In this appeal, it was held and observed by the NCLAT:-

D“54. In the present case, we find that the ‘Resolution Plan’ isagainst the statement and object of the ‘I&B Code’ and, therefore,we have directed M/s. Maharashtra Seamless Limited’ to modifythe plan. Till the plan is modified, as ordered above, ‘M/s.Maharashtra Seamless Limited’ cannot take over the ‘CorporateDebtor’ without complying with the direction as given and recordedEabove.

55. However, it does not mean that the Promoters/ Ex-Directorswill create hindrance in the matter of taking over the premisesand plant of the ‘Corporate Debtor’ which for the present shouldbe taken over by the ‘Resolution Professional’. The AdjudicatingFAuthority will direct the ‘Resolution Professional’ to take overthe possession of the plant and offices and other premises andassets of the ‘Corporate Debtor’ to ensure that the assets remainintact till the plan is improved by the ‘Resolution Applicant’ in amanner as directed above. For taking over such possession, theGAdjudicating Authority will direct the concerned District Collectorand the Superintendent of Police of the District to providenecessary force to enable the ‘Resolution Professional’ to takeover the premises and plant of the ‘Corporate Debtor’ and all themoveable and immoveable assets.

MAHARASHTRA SEAMLESS LIMITED v. PADMANABHANVENKATESH & ORS. [ANIRUDDHA BOSE, J. ]

56. If the ‘Resolution Applicant’ modifies the ‘Resolution Plan’,as ordered above and deposits another sum of Rs.120.54 Croreswithin 30 days, by improving the plan, the Adjudicating Authoritywill allow ‘M/s. Maharashtra Seamless Limited’ to take over thepossession of the ‘Corporate Debtor’ including its moveable andimmoveable assets and the plant. On failure, the plan approved infavour of ‘M/s. Maharashtra Seamless Ltd.’ deemed to be setaside and the Adjudicating Authority will pass appropriate orderin 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 thisapplication, they have, in substance, sought refund of the sum depositedin terms of the resolution plan alongwith interest. In this application,MSL has also applied for withdrawal of the resolution plan. Theirgrievance is that in order to take over the corporate debtor, they hadavailed of substantial term loan facility and deposited the sum of Rs.477crores for resolution of the corporate debtor in designated escrowaccount on 19th February, 2019 but because of delay in implementationof the resolution plan, they were compelled to bear the interest burden.It is also their case that the export orders they had accepted in anticipationof successful implementation of the resolution plan were cancelled as aresult of which takeover of the corporate debtor had become unworkable.

6. The application of the Indian Bank under Section 7 of the Codewas filed on 12[th] June 2017. An Interim Resolution Professional wasappointed initially, who was changed later in the proceeding. TheResolution Professional on 10[th] January, 2018, issued invitation callingapplications from interested parties by 28[th] February, 2018. This timelinewas subsequently extended from time to time, and altogether fourresolution plans were placed before the Committee of Creditors (CoC).This Committee was constituted on 18[th] August 2017 by the InterimResolution Professional. One of these plans was by MSL. The otherResolution Applicant whose offer was considered was M/s. AreaProjects Consultants Private Limited. MSL had offered upfront paymentof Rs.477 crores. The resolution plan of MSL was approved by thefinancial creditors having 87.10% of the voting shares. This voting blockconsisted of the two aforesaid Deutsche Bank entities. The DeutscheBank International (Asia) Limited had 73.40% vote share and the IndianBank had 12.90% voting share in CoC.

1164SUPREME COURT REPORTS

A7. Two registered valuers being K. Vijay Bhasker Reddy andP. Madhu were initially appointed for determining the value of thecorporate debtor. Their valuations were to the tune of Rs.681 croresand Rs.513 crores respectively. On account of substantial difference intheir valuations, the Committee appointed third valuer, Duff and Phelps.They valued the Corporate debtor at Rs.352 crores. The CommitteeBthereafter took into consideration the average of the two closest estimatesof valuation by P. Madhu and Duff and Phelps and liquidation value wasassessed to be Rs.432.92 crores.

8. Subsequently, an application was filed before the AdjudicatingAuthority by the Resolution Professional in which he sought approval ofCthe resolution plan. That application was disposed of by the AdjudicatingAuthority by an order passed on 28[th] September, 2018, inter-alia, directingthe Resolution Professional to re-determine the liquidation value of thecorporate debtor by taking into consideration the first and second valuationof P. Madhu and K. Vijay Bhaskar. It was, inter alia, directed in thisDorder of 28[th] September, 2018:-

“(2) The Resolution Professional shall convene meeting of CoCto place the qualified Resolution Plans along with Resolution Planof MSL before CoC for reconsideration, in the light of revisedliquidation value of the Corporate Debtor Company.

E(3) 30 days’ time is excluded from the CIRP period with effectfrom today for completing the above direction.

(4) The Resolution Professional is directed to allow Directors /Suspended Board to participate in the CoC meetings and permitthem to express their views and suggestions and record the sameFin the Minutes of the meeting of the CoC.”

9. Revised valuation of the corporate debtor was made, enhancingthe same to Rs.597.54 crores from Rs.432.92 crores. In its 9[th] meetingheld on 16[th] October, 2018, the Committee took into consideration therevised valuation and on majority voting approved again the resolutionGplan of MSL. The directors of suspended Board were given opportunityto express their views and suggestions before the Committee.

10. The order of the Adjudicating Authority passed on 28[th]September 2018 was appealed against by MSL before NCLAT. Thisappeal was registered as Company Appeal (AT) (Insolvency) No.637Hof 2018. That appeal was disposed of by the Tribunal on 12[th] November2018 with the following observation and direction:-

MAHARASHTRA SEAMLESS LIMITED v. PADMANABHANVENKATESH & ORS. [ANIRUDDHA BOSE, J. ]

“Learned counsel appearing on behalf of the member of the‘Committee of Creditors’ submits that during the pendency of thisappeal 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 theappellant’ – ‘Maharashtra Seamless Ltd.’ has been approved. Itis also accepted by the learned counsel appearing on behalf of the‘Resolution Professional’ and the learned counsel appearing onbehalf of the appellant. In view of the aforesaid position, we arenot inclined to deliberate on the question as raised in the presentappeal, which may be answered in some other case. TheAdjudicating Authority is now required to pass order under Section31 of the I&B Code without granting unnecessary adjournmentsto any of the party uninfluenced by its earlier order, which is underchallenge. The appeal is disposed of with aforesaid observationsand directions.” (quoted verbatim)11. Before disposal of Company Appeal (AT) (Insolvency) No.637of 2018, on 25[th] October 2018 the resolution professional had filed anapplication (I.A.No.472/2018) before the Adjudicating Authority seekingapproval of the resolution plan as per the decision in the 9[th] meeting ofthe committee held on 16[th] October 2018. We have referred to theoutcome of the said meeting earlier in this judgment. The order of theAdjudicating Authority was issued on 21[st] January 2019 approving theresolution plan upon considering Section 31 of the 2016 Code. TheAdjudicating Authority, inter-alia, held and observed:-

“27. The Resolution Professional has filed the present Applicationenclosing the minutes of 9[th] CoC. The question whether the plansubmitted by M/s MSL is in conformity with Section 30 (2) of theCode. If it is in conformity, then the plan is to be approved underSection 31 of the Code. The CoC has examined all eligibleresolution plans again in the 9[th] CoC meeting held on 16.10.2018.The Resolution Plan submitted by M/s MSL is below the revisedLiquidation Value. The difference is about Rs.120 crores.However, as per directions of the Hon’ble NCLAT, this Tribunalto decide the plan filed by M/s. MSL without being influenced byits previous order.

28. The CoC has approved the Resolution Plan submitted byM/s MSL with majority of voting share of Financial Creditors at

87.10%. The CoC in its wisdom has approved the Plan. No doubtIndian Bank, the other Financial Creditor having voting share at12.90% opposed for approval of the Resolution Plan. The minimumrequired percentage of voting for approval of the Resolution Planas per the latest amendment is 66%. In this case, the ResolutionPlan with voting share of 87.10 of the Financial Creditors approvedthe plan.

29. The other contention raised that upfront payment is below therevised liquidation value and therefore, the Plan could not beaccepted. On the other hand, Hon’ble NCLAT has held inCompany Appeal No.637/2018 that this Tribunal to decide theApplication under Section 31 of IBC without being influenced bythe previous order. When such is the case, the revised Liquidationvalue has no role to pay while considering the Resolution Plansubmitted by M/s MSL. The Tribunal has to test the ResolutionPlan with reference to provisions of Section 30 (2) of IBC. TheResolution Professional certified that Plan of M/s MSL is inconformity with provisions of Section 30 (2) of the Code. So, theLiquidation Value prior to re-determination if taken into account,the upfront payment offered by M/s MSL is over and above theLiquidation Value. Therefore, the objection taken by the Director(Suspended Board) and also Indian Bank could not be taken intoaccount in view of the direction of Hon’ble NCLAT.

30. The next contention raised that the Resolution Applicant hasnot obtained prior approval of the CCI as required under Section31 (4) of the Code. The Counsel for Resolution Professional wouldcontend that there is no need to obtain prior approval of CCI asFthe plan submitted by M/s MSL does not fall under the provisionsof CCI. The Director (Suspended Board) has raised the same inthe 9[th] CoC meeting and it is answered that such approval is notnecessary. Even otherwise Section 31(4) provides that necessaryapproval required under any law for the time being in force is toGbe obtained by Resolution Applicant within period of one yearor within the prescribed period under such law. Therefore,Resolution Applicant can obtain necessary approvals in periodof one year if it is required. Thus, the Resolution Plan ofM/s MSL filed by Resolution Professional is to be approved as itmeets all the requirements of Section 30 (2) of IBC.

MAHARASHTRA SEAMLESS LIMITED v. PADMANABHANVENKATESH & ORS. [ANIRUDDHA BOSE, J. ]

31. In the result, the Resolution plan submitted by M/s MaharashtraSeamless Limited is approved and that the same shall be bindingon 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 theapproved resolution plan shall come into force with immediateeffect. The moratorium order passed by this Tribunal under Section14 shall cease to have vacated.

33. The resolution professional shall forward all records relatingto the conduct of the corporate insolvency resolution process andthe resolution plan to the IBBI to be recorded on its database.

34. CA No. 472/2018 in CP (IB) No.49/7HBD/2017 is disposedof in terms of the above.” (quoted verbatim)

12. The complaint of Padmanabhan Venkatesh, one of the originalpromoters and the Bank before the NCLAT was primarily on the groundthat the approval of resolution plan amounting to Rs.477 crores wasgiving the Resolution Applicant windfall as they would get assets valuedat Rs.597.54 crores at much lower amount. The other ground urged bythe Bank was that the Area Projects Consultants Private Limited, oneof the Resolution Applicants had made revised offer of Rs.490 crores,which was more than the amount offered by the MSL. In course of thehearing of the appeal, it appears that the successful Resolution Applicanthad indicated infusion of more funds, which was taken into considerationby the NCLAT. This would appear from the following passage of theorder 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 Croresalthough Rs. 477 Crores is upfront amount. In addition to thatRs. 180.50 Crores which would be infused directly in the‘Corporate Debtor’ by ‘M/s. Maharashtra Seamless Ltd.’-(4[th] Respondent). Further, Rs. 57 Crores would be infused towards25% margin money of working capital expenditure. Moreover, infact, the total working capital Rs. 224 Crores, the balance to betaken as loan from Bank(s), which would also require CorporateGuarantees of the 4[th] Respondent.

25. It was further contended that the ‘Corporate Debtor’ planthas been lying closed for the last three years. Additionally, in all

Aits operational life prior thereto, the ‘Corporate Debtor’ over aperiod of seven years could not produce even total of 1,50,000MT, which is supposed to be its production capacity of one year.Thus, it was only after due and in-depth consideration, includingtaking into account extensive further investments, which wouldmandatorily have to be made to get the Corporate Debtor’ up andBrunning, that the ‘Successful Resolution Applicant’ offeredRs. 477 Crores, which was payable within 30 days of the approvalof the plan.

26. Therefore, according to counsel for 4[th] Respondent, theaforesaid infusion of funds by the 4[th] Respondent aggregatingCRs.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 AdjudicatingAuthority flawed, inter-alia, for the following reasons:-

D“34. Therefore, it is clear that the ‘Committee of Creditors’ hasalso accepted the average of the liquidation value which comes toRs. 597.54 Crores and on the basis of which the ‘Resolution Plan’was considered. If the ‘Resolution Plan’ is considered, then it willbe evident that 25% of the admitted dues of the ‘FinancialCreditors’ have been allowed in the ‘Resolution Plan’. On theEother hand, the ‘Operational Creditors’ have been discriminated.The liquidation value being Rs.597.54 Crores, the upfront paymentsuggested by the ‘Resolution Applicant’ being less i.e., Rs. 477Crores, the payment to the ‘Operational Creditors’ is lower thanthe proportionate liquidation value, therefore, the ‘Resolution Plan’,Fas 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 NCLATearlier in this judgment.

14. The appeal of MSL argued by Mr. Kapil Sibal, learned seniorGcounsel, is mainly on the ground that the NCLAT had exceeded itsjurisdiction in directing matching of liquidation value in the resolutionplan. MSL in the appeal have sought to sustain the resolution plan buttheir prayer in the interlocutory application is refund of the amount remittedcoupled with the plea of withdrawal of resolution plan. However, theirmain case in the appeal is that final decision on resolution plan should beH

left to the commercial wisdom of the Committee of Creditors and thereis no requirement that resolution plan should match the maximized assetvalue of the corporate debtors. On the other hand, Mr. Abhishek ManuSinghvi, learned senior counsel appearing for two main financial creditors,while supporting the main appeal of Mr. Sibal has resisted the plea forwithdrawal of the resolution plan and refund of the sum already remittedby Mr. Sibal’s clients. Mr. Singhvi has highlighted the fact that theexposure of his clients to the total debt of the corporate debtors isRs.2060 crores and his clients being the primary creditors to the tune of87.10% of the total dues, it was his clients who would have sufferedloss, if any, on account of resolution plan not matching the liquidationvalue.

15. On the aspect of withdrawal of the plan, Mr. Singhvi hasreferred to Section 12-A of the 2016 Code. His submission is that theonly route through which resolution applicant can travel back afteradmission of the resolution plan is the aforesaid provision. Section 12-Aof the 2016 Code stipulates:-

“12A. Withdrawal of application admitted under section 7,9 or 10. – The Adjudicating Authority may allow the withdrawalof application admitted under section 7 or section 9 or section 10,on an application made by the applicant with the approval of ninetyper cent. voting share of the committee of creditors, in such manneras may be specified.”

16. It is admitted position that approximately Rs.472 crores havebeen remitted to the financial creditors which was received fromMr. Sibal’s clients. The D.B. International Asia Limited, having 73.40%voting shares in the CoC has also assailed the impugned order on groundssimilar to that taken by the MSL.

17. We shall address two issues in this appeal. The first one iswhether the scheme of the Code contemplates that the sum formingpart of the resolution plan should match the liquidation value or not. Thesecond question we shall deal with is as to whether Section 12-A is theapplicable route through which successful Resolution Applicant canretreat. Before we proceed to answer these two questions, we mustindicate that before the Appellate Authority substantial argument wasadvanced over failure on the part of the Adjudicating Authority to maintainparity between the financial creditors and operational creditors on theaspect of clearing dues.

1170SUPREME COURT REPORTS

18. Section 30 (2) (b) of the Code specifies the manner in whicha 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) resolution applicantmay submit resolution plan along with an affidavit stating thatBhe is eligible under section 29A to the resolutionprofessional prepared on the basis of the information memorandum.

(2) The resolution professional shall examine each resolution planreceived by him to confirm that each resolution plan—

(a) provides for the payment of insolvency resolution process costsin manner specified by the Board in priority to the payment ofother debts of the corporate debtor;

(b) provides for the payment of debts of operational creditors insuch manner as may be specified by the Board which shall not beless than-

(i) the amount to be paid to such creditors in the event of aliquidation of the corporate debtor under section 53; or

(ii) the amount that would have been paid to such creditors, ifthe amount to be distributed under the resolution plan had beendistributed in accordance with the order of priority in sub-sectionE(1) of section 53,

whichever is higher, and provides for the payment of debts offinancial creditors, who do not vote in favour of the resolutionplan, in such manner as may be specified by the Board, which shallnot be less than the amount to be paid to such creditors inFaccordance with sub-section (1) of section 53 in the event of aliquidation of the corporate debtor.

Explanation 1. — For removal of doubts, it is hereby clarified thata distribution in accordance with the provisions of this clause shallbe fair and equitable to such creditors.

Explanation 2. — For the purposes of this clause, it is herebydeclared that on and from the date of commencement of theInsolvency and Bankruptcy Code (Amendment) Act, 2019, theprovisions of this clause shall also apply to the corporate insolvencyresolution process of corporate debtor-

(i) where resolution plan has not been approved or rejected bythe Adjudicating Authority;

(ii) where an appeal has been preferred under section 61 or section62 or such an appeal is not time barred under any provision of lawfor the time being in force; or

(iii) where legal proceeding has been initiated in any court againstthe decision of

the Adjudicating Authority in respect of resolution plan;

(c) provides for the management of the affairs of the Corporatedebtor 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 thetime being in force;

(f) conforms to such other requirements as may be specified bythe Board.

Explanation. — For the purposes of clause (e), if any approval ofshareholders is required under the Companies Act, 2013 (18 of2013) or any other law for the time being in force for theimplementation of actions under the resolution plan, such approvalshall be deemed to have been given and it shall not be acontravention of that Act or law.

(3) The resolution professional shall present to the committee ofcreditors for its approval such resolution plans which confirm theconditions referred to in sub-section (2).

(4) The committee of creditors may approve resolution plan bya vote of not less than sixty-six per cent. of voting share of thefinancial creditors, after considering its feasibility and viability, themanner of distribution proposed, which may take into account theorder of priority amongst creditors as laid down in sub-section (1)of section 53, including the priority and value of the security interestof secured creditor and such other requirements as may bespecified by the Board:

Provided that the committee of creditors shall not approvea resolution plan, submitted before the commencement of theInsolvency and Bankruptcy Code (Amendment) Ordinance, 2017,

Awhere the resolution applicant is ineligible under section 29A andmay require the resolution professional to invite fresh resolutionplan where no other resolution plan is available with it:

Provided further that where the resolution applicant referredto in the first proviso is ineligible under clause (c) of section 29A,Bthe resolution applicant shall be allowed by the committee ofcreditors such period, not exceeding thirty days, to make paymentof overdue amounts in accordance with the proviso to clause (c)of section 29A:

Provided also that nothing in the second proviso shall beCconstrued as extension of period for the purposes of the provisoto sub-section (3) of section 12, and the corporate insolvencyresolution process shall be completed within the period specifiedin that sub-section.”.

Provided also that the eligibility criteria in section 29A as amendedDby the Insolvency and Bankruptcy Code (Amendment) Ordinance,2018 shall apply to the resolution applicant who has not submittedresolution plan as on the date of commencement of the Insolvencyand Bankruptcy Code (Amendment) Ordinance, 2018.

(5) The resolution applicant may attend the meeting of theEcommittee of creditors in which the resolution plan of the applicantis considered:

Provided that the resolution applicant shall not have right tovote at the meeting of the committee of creditors unless suchresolution applicant is also financial creditor.

F(6) The resolution professional shall submit the resolution plan asapproved by the committee of creditors to the AdjudicatingAuthority.”

19. The manner in which the claims of the operational creditorsshall be considered in CIRP has been dealt with by co-ordinateGBench of this Court (of which two of us, Nariman J. andRamasubramanian J. were members) in the case of Committee ofCreditors of Essar Steel India Limited vs. Satish Kumar Gupta,decided on 15th November, 2019 in Civil Appeal Nos. 8766-8767 of2019 (2019 SCC OnLine SC 1478). It has been held in paragraph 53 ofthis judgment in the said report:-H

MAHARASHTRA SEAMLESS LIMITED v. PADMANABHANVENKATESH & ORS. [ANIRUDDHA BOSE, J. ]

“53. However, as has been correctly argued on behalf of theoperational creditors, the preamble of the Code does speak ofmaximisation of the value of assets of corporate debtors and thebalancing of the interests of all stakeholders. There is no doubtthat key objective of the Code is to ensure that the corporatedebtor keeps operating as going concern during the insolvencyresolution process and must therefore make past and presentpayments to various operational creditors without which suchoperation as going concern would become impossible. Sections5(26), 14(2), 20(1), 20(2)(d) and (e) of the Code read withRegulations 37 and 38 of the 2016 Regulations all speak of thecorporate debtor running as going concern during the insolvencyresolution process. Workmen need to be paid, electricity dues needto be paid, purchase of raw materials need to be made, etc. Thisis 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 toreorganisation and insolvency resolution of corporate persons,partnership firms and individuals in time-bound manner formaximisation of value of assets of such persons, to promoteentrepreneurship, availability of credit and balance the interestsof all the stakeholders including alteration in the order of priorityof payment of government dues and to establish an Insolvencyand Bankruptcy Board of India, and for matters connectedtherewith or incidental thereto.”

27. As is discernible, the Preamble gives an insight into whatis sought to be achieved by the Code. The Code is first andforemost, Code for reorganisation and insolvency resolutionof corporate debtors. Unless such reorganisation is effected ina time-bound manner, the value of the assets of such personswill deplete. Therefore, maximisation of value of the assets ofsuch persons so that they are efficiently run as going concernsis another very important objective of the Code. This, in turn,will promote entrepreneurship as the persons in managementof the corporate debtor are removed and replaced byentrepreneurs. When, therefore, resolution plan takes offand the corporate debtor is brought back into the economic

mainstream, it is able to repay its debts, which, in turn, enhancesthe viability of credit in the hands of banks and financialinstitutions. Above all, ultimately, the interests of all stakeholdersare looked after as the corporate debtor itself becomes a—beneficiary of the resolution scheme workers are paid, thecreditors in the long run will be repaid in full, and shareholders/investors are able to maximise their investment.Timelyresolution of corporate debtor who is in the red, by aneffective legal framework, would go long way to support thedevelopment of credit markets. Since more investment can bemade with funds that have come back into the economy,business then eases up, which leads, overall, to higher economicgrowth and development of the Indian economy. What isinteresting to note is that the Preamble does not, in any manner,refer to liquidation, which is only availed of as last resort ifthere is either no resolution plan or the resolution plans submittedare not up to the mark. Even in liquidation, the liquidator cansell the business of the corporate debtor as going concern.(See ArcelorMittal [ArcelorMittal (India) (P) Ltd. v. SatishKumar Gupta, (2019) 2 SCC 1] at para 83, fn 3).” (emphasissupplied)

“54. This is the reason why Regulation 38(1A) speaks of aresolution plan including statement as to how it has dealtwith the interests of all stakeholders, including operationalcreditors of the corporate debtor. Regulation 38(1) also statesthat the amount due to operational creditors under resolutionplan 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 tonil after secured creditors have been paid - would certainly notbalance the interest of all stakeholders or maximise the valueof assets of corporate debtor if it becomes impossible tocontinue running its business as going concern. Thus, it isclear that when the Committee of Creditors exercises itscommercial wisdom to arrive at business decision to revivethe corporate debtor, it must necessarily take into account thesekey features of the Code before it arrives at commercialdecision to pay off the dues of financial and operational creditors.There is no doubt whatsoever that the ultimate discretion of

MAHARASHTRA SEAMLESS LIMITED v. PADMANABHANVENKATESH & ORS. [ANIRUDDHA BOSE, J. ]

what to pay and how much to pay each class or subclass ofcreditors is with the Committee of Creditors, but, the decisionof such Committee must reflect the fact that it has taken intoaccount maximising the value of the assets of the corporatedebtor and the fact that it has adequately balanced the interestsof all stakeholders including operational creditors. This beingthe case, judicial review of the Adjudicating Authority that theresolution plan as approved by the Committee of Creditors hasmet the requirements referred to in Section 30(2) would includejudicial review that is mentioned in Section 30(2)(e), as theprovisions of the Code are also provisions of law for the timebeing in force. Thus, while the Adjudicating Authority cannotinterfere on merits with the commercial decision taken by theCommittee of Creditors, the limited judicial review available isto see that the Committee of Creditors has taken into accountthe fact that the corporate debtor needs to keep going as agoing concern during the insolvency resolution process; that itneeds to maximise the value of its assets; and that the interestsof all stakeholders including operational creditors has been takencare of. If the Adjudicating Authority finds, on given set offacts, that the aforesaid parameters have not been kept in view,it may send resolution plan back to the Committee of Creditorsto re-submit such plan after satisfying the aforesaid parameters.The reasons given by the Committee of Creditors whileapproving resolution plan may thus be looked at by theAdjudicating Authority only from this point of view, and once itis satisfied that the Committee of Creditors has paid attentionto 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 theCode would be applicable only during liquidation and not at thestage of resolving insolvency is correct. Section 30(2)(b) of theCode refers to Section 53 not in the context of priority of paymentof creditors, but only to provide for minimum payment tooperational creditors. However, this again does not in any mannerlimit the Committee of Creditors from classifying creditors as

ABC

DEF

Afinancial or operational and as secured or unsecured. Full freedomand discretion has been given, as has been seen hereinabove, tothe Committee of Creditors to so classify creditors and to paysecured creditors amounts which can be based upon the value oftheir security, which they would otherwise be able to realise outsidethe process of the Code, thereby stymying the corporate resolutionBprocess itself.”

21. Submission of the respondents supporting the impugned orderof 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 theoperational creditors of the corporate debtor come way down in theCpriority list for distribution of assets under Section 53 of the Code informing our opinion over applicability of clause 38(1) of the 2016Regulations expressed in the previous paragraph. But on this point, aclear guidance comes from the decision of co-ordinate Bench in thecase of Essar Steel (supra) on the point of dealing with the claims ofDoperational creditors. It has also been held in that judgment in paragraph70 of the said report:-

“70. By reading paragraph 77 de hors the earlier paragraphs, theAppellate Tribunal has fallen into grave error. Paragraph 76 clearlyrefers to the UNCITRAL Legislative Guide which makes it clearEbeyond any doubt that equitable treatment is only of similarlysituated creditors. This being so, the observation in paragraph 77cannot be read to mean that financial and operational creditorsmust be paid the same amounts in any resolution plan before itcan pass muster. On the contrary, paragraph 77 itself makes itclear that there is difference in payment of the debts of financialFand operational creditors, operational creditors having to receivea minimum payment, being not less than liquidation value, whichdoes not apply to financial creditors. The amended Regulation 38set out in paragraph 77 again does not lead to the conclusion thatfinancial and operational creditors, or secured and unsecuredGcreditors, must be paid the same amounts, percentage wise, underthe resolution plan before it can pass muster. Fair and equitabledealing of operational creditors’ rights under the said Regulationinvolves the resolution plan stating as to how it has dealt with theinterests of operational creditors, which is not the same thing assaying that they must be paid the same amount of their debt

MAHARASHTRA SEAMLESS LIMITED v. PADMANABHANVENKATESH & ORS. [ANIRUDDHA BOSE, J. ]

proportionately. Also, the fact that the operational creditors aregiven priority in payment over all financial creditors does not leadto the conclusion that such payment must necessarily be the samerecovery percentage as financial creditors. So long as the provisionsof the Code and the Regulations have been met, it is thecommercial wisdom of the requisite majority of the Committee ofCreditors which is to negotiate and accept resolution plan, whichmay involve differential payment to different classes of creditors,together with negotiating with prospective resolution applicantfor better or different terms which may also involve differencesin distribution of amounts between different classes of creditors.”

22. But the controversy on there being no provision in the resolutionplan for operational creditors is only academic now. Before the AppellateAuthority itself the successful Resolution Applicant had agreed to clearthe dues of the operational creditors in percentage at par with the financialcreditors. Moreover, none of the operational creditors has come beforeus questioning the legality of the resolution plan. It would appear frompara 29 of the order under appeal:

“29. It was submitted that the claims received of the ‘OperationalCreditors’ by the Respondent No.1 were to the tune ofRs.2,26,70,153/- whereas the claims verified were ofRs.2,02,88,948/-. However, it was submitted that the 4[th]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 ‘SuccessfulResolution Applicant’ getting clear and unfettered possession ofand rights to the ‘Corporate Debtor’.” (quoted verbatim)

23. The Adjudicating Authority has primarily relied on Section 31of the Code in approving the resolution plan. The said provision reads:

“31. Approval of resolution plan. – (1) If the AdjudicatingAuthority is satisfied that the resolution plan as approved by thecommittee of creditors under sub-section (4) of section 30 meetsthe requirements as referred to in sub-section (2) of section 30, itshall by order approve the resolution plan which shall be bindingon the corporate debtor and its employees, members, creditors,including the Central Government, any State Government or anylocal authority to whom debt in respect of the payment of dues

arising under any law for the time being in force, such as authoritiesto whom statutory dues are owed, guarantors and otherstakeholders involved in the resolution plan.

Provided that the Adjudicating Authority shall, before passingan order for approval of resolution plan under this sub-section,Bsatisfy that the resolution plan has provisions for its effectiveimplementation.

(2) Where the Adjudicating Authority is satisfied that the resolutionplan does not confirm to the requirements referred to in sub-section(1), it may, by an order, reject the resolution plan.

C(3) After the order of approval under sub-section (1),—

(a) the moratorium order passed by the Adjudicating Authorityunder section 14 shall cease to have effect; and

(b) the resolution professional shall forward all records relatingDto the conduct of the corporate insolvency resolution processand the resolution plan to the Board to be recorded on itsdatabase.

(4) The resolution applicant shall, pursuant to the resolution planapproved under sub-section (1), obtain the necessary approvalrequired under any law for the time being in force within periodEof one year from the date of approval of the resolution plan by theAdjudicating Authority under sub-section (1) or within such periodas provided for in such law, whichever is later.

Provided that where the resolution plan contains provisionfor combination, as referred to in section 5 of the CompetitionFAct, 2002, the resolution applicant shall obtain the approval of theCompetition Commission of India under that Act prior to theapproval of such resolution plan by the committee of creditors.”

24. On behalf of the Indian Bank and the said promoter of thecorporate debtor, reliance was placed on Clause 35 of The InsolvencyGand Bankruptcy Board of India (Insolvency Resolution Process forCorporate Persons) Regulations, 2016:

“35. Liquidation value. (1) Liquidation value is the estimatedrealizable value of the assets of the corporate debtor if thecorporate debtor were to be liquidated on the insolvencyHcommencement date.

(2) Liquidation value shall be determined in the following manner:

(a) the two registered valuers appointed under Regulation 27 shallsubmit to the interim resolution professional or the resolutionprofessional, as the case may be, an estimate of the liquidationvalue computed in accordance with internationally acceptedvaluation standards, after physical verification of the inventoryand fixed assets of the corporate debtor;

(b) if in the opinion of the interim resolution professional or theresolution professional, as the case may be, the two estimates aresignificantly different, he may appoint another registered valuerwho shall submit an estimate computed in the same manner; and

(c) the average of the two closest estimates shall be consideredthe liquidation value.

(3) The resolution professional shall provide the liquidation valueto the committee in electronic form.”

25. Now the question arises as to whether, while approving aresolution plan, the Adjudicating Authority could reassess resolutionplan approved by the Committee of Creditors, even if the same otherwisecomplies with the requirement of Section 31 of the Code. Learned counselappearing for the Indian Bank and the said erstwhile promoter of thecorporate debtor have emphasised that there could be no reason torelease property valued at Rs.597.54 crores to MSL for Rs.477 crores.Learned counsel appearing for these two respondents have sought tostrengthen their submission on this point referring to the other ResolutionApplicant whose bid was for Rs.490 crores which is more than that ofthe appellant MSL.

26. No provision in the Code or Regulations has been brought toour notice under which the bid of any Resolution Applicant has to matchliquidation value arrived at in the manner provided in Clause 35 of theInsolvency and Bankruptcy Board of India (Insolvency ResolutionProcess for Corporate Persons) Regulations, 2016. This point has beendealt with in the case of Essar Steel (supra). We have quoted abovethe relevant passages from this judgment.

27. It appears to us that the object behind prescribing such valuationprocess is to assist the CoC to take decision on resolution plan properly.Once, resolution plan is approved by the CoC, the statutory mandate

Aon the Adjudicating Authority under Section 31(1) of the Code is toascertain that resolution plan meets the requirement of sub-sections(2) and (4) of Section 30 thereof. We, per se, do not find any breach ofthe said provisions in the order of the Adjudicating Authority in approvingthe resolution plan.

B28. The Appellate Authority has, in our opinion, proceeded onequitable perception rather than commercial wisdom. On the face of it,release of assets at value 20% below its liquidation value arrived at bythe valuers seems inequitable. Here, we feel the Court ought to cedeground to the commercial wisdom of the creditors rather than assess theresolution plan on the basis of quantitative analysis. Such is the schemeCof the Code. Section 31(1) of the Code lays down in clear terms that forfinal approval of resolution plan, the Adjudicating Authority has to besatisfied that the requirement of sub-section (2) of Section 30 of theCode has been complied with. The proviso to Section 31(1) of the Codestipulates the other point on which an Adjudicating Authority has to beDsatisfied. That factor is that the resolution plan has provisions for itsimplementation. The scope of interference by the Adjudicating Authorityin limited judicial review has been laid down in the case of Essar Steel(supra), the relevant passage (para 54) of which we have reproducedin earlier part of this judgment. The case of MSL in their appeal is thatthey want to run the company and infuse more funds. In suchEcircumstances, we do not think the Appellate Authority ought to haveinterfered with the order of the Adjudicating Authority in directing thesuccessful Resolution Applicant to enhance their fund inflow upfront.

29. So far as the IA taken out by the MSL is concerned, in ouropinion they cannot withdraw from the proceeding in the manner theyFhave approached this Court. The exit route prescribed in Section 12-A isnot applicable to Resolution Applicant. The procedure envisaged in thesaid provision only applies to applicants invoking Sections 7, 9 and 10 ofthe code. In this case, having appealed against the NCLAT order withthe object of implementing the resolution plan, MSL cannot be permittedGto take contrary stand in an application filed in connection with thevery same appeal. Moreover, MSL has raised the funds upon mortgagingthe assets of the corporate debtor only. In such circumstances, we arenot engaging in the judicial exercise of determining the question as towhether after having been successful in CIRP, an applicant altogetherforfeits their right to withdraw from such process or not.H

30. Certain allegations were made by the MSL over failure on thepart of the Resolution Professional in taking possession of the assets ofthe corporate debtor and subsequently in their failure in handing over thesame to MSL. These issues are factual. Mr. Neeraj Kishan Kaul, learnedsenior counsel appearing for the Resolution Professional disputed suchallegations. The order of the NCLAT does not deal with this aspect ofthe controversy and we do not think we, in exercise of our jurisdictionunder Section 62 of the Code ought to engage ourselves in determiningthat question.

31. We, accordingly, allow the appeal of MSL and set aside theorder of the NCLAT under appeal before us. The order of theAdjudicating Authority passed on 21[st] January 2019 is affirmed. MSL,however, shall remit additional sum of Rs.50,72,237/- to the ResolutionProfessional for further remittance to the operational creditors as pertheir dues. This sum has already been offered to the operational creditors,as recorded in the impugned order. We dismiss the I.A.No.115118 of2019 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 ouraforesaid findings and these directions, we are not going into the questionas to whether any illegality was committed by MSL as regards changein composition of Board of Directors of the corporate debtor.32. We, accordingly, direct the Resolution Professional to takephysical possession of the assets of the corporate debtor and hand itover to the MSL (appellant in C.A.No.4242 of 2019) within period offour weeks. The police and administrative authorities are directed torender assistance to the Resolution Professional to enable him to carryout these directions.

33. All interim orders stand dissolved and connected applicationsare disposed of.

34. There shall be no order as to costs.

Kalpana K. Tripathy

Appeals allowed.