(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

J U D G M E N T

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

of 2019. The total debt of the corporate debtor was Rs. 1897 crores,

out of which Rs.1652 crores comprised of term loans from two

1

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 21

st

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

2

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 28

th

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:-

3

“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 8

th

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

4

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

5

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 12

th

June 2017. An Interim Resolution Professional was

appointed initially, who was changed later in the proceeding. The

Resolution Professional on 10

th

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 18

th

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.

8

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 28

th

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 9

th

meeting

held on 16

th

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 28

th

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:-

10

“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 25

th

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 16

th

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 21

st

January

11

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 9

th

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

12

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 9

th

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

14

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.’- (4

th

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 4

th

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

4

th

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.

16

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

17

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 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 ‘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 21

st

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