On August 16, 2019, Section 30(2)(b) of the Insolvency and Bankruptcy Code (Amendment) Act, 2019, was amended to provide that operational and dissenting financial creditors shall not be paid less than what creditors can get in the event of liquidation of the corporate debtor under Section 53(1) of the code. In other words, a dissenting creditor shall not be asked to take a settlement that is less than what he would get if the debtor was liquidated.
Ruchi Soya, which owes banks and operational creditors ₹8,398 crore, went into liquidation. Patanjali Ayurvedic Ltd submitted a resolution plan for ₹4,134 crore, representing 49.22 per cent of the dues. DBS Bank of Singapore, which had lent ₹243 crore to Ruchi Soya, has mortgaged assets, which, if liquidated, would fetch it ₹217.86 crore. But under the resolution plan, which was approved, it would get less. DBS Bank invoked the amended Section 30(2)(b) and demanded that it should get at least ₹217.86 crore.
In an earlier case, India Resurgence ARC Pvt Ltd vs Amit Metaliks, the Supreme Court had said that a dissenting secured creditor lacked the standing to contest an approved resolution plan.
However, in the Ruchi Soya case, Justice Sanjiv Khanna and Justice SVN Bhatti noted that the point (in India Resurgence ARC Pvt Ltd) that a dissenting secured creditor cannot ask for a higher amount is correct. “However, this does not affect the right of a dissenting secured creditor to get payment equal to the value of the security interest in terms of Section 30(2)(b)(ii) of the code.”
The SC noted that “a dissenting financial creditor is entitled to not partake in the proceeds in the resolution plan, unless a higher amount in congruence with its security interest is approved in the resolution plan”. The dissenting financial creditor cannot, of course, force liquidation, but should get an amount not less than what he would get if the debtor were liquidated and the assets sold.
In view of the divergence from the set precedent, the SC felt that “it would be appropriate and proper if the question framed at the beginning of this judgment is referred to a larger Bench. The matter may be, accordingly, placed before the Hon’ble Chief Justice for appropriate orders”.