In a pivotal legal development, the Supreme Court has cast uncertainty over the entitlement of dissenting financial creditors to the minimum value of their security interest under the Insolvency and Bankruptcy Code of 2016. The case, DBS Bank Ltd Singapore v. Ruchi Soya Industries Ltd and another, prompted the bench comprising Justices Sanjiv Khanna and SVN Bhatti to refer the crucial question to a larger bench.
The focal point of the referral revolves around Section 30(2)(b)(ii) of the Insolvency and Bankruptcy Code, amended in 2019. The court seeks clarification on whether dissenting financial creditors are legally entitled to receive the minimum value of their security interest.
This move diverges from the precedent set by a coordinate bench in the 2021 case of India Resurgence ARC Private Limited v. Amit Metaliks Limited & Another. The earlier decision asserted that dissenting secured creditors lack the standing to challenge an approved resolution plan based on the contention that a higher amount should have been disbursed considering their security interest in the corporate debtor.
Drawing attention to a contradiction between this stance and previous three-Judge Bench judgments, namely Committee of Creditors of Essar Steel India Limited v. Satish Kumar Gupta (2019) and Jaypee Kensington Boulevard Apartments Welfare Association vs. NBCC (India) Ltd (2021), the court expressed reservations about the coherence of legal perspectives.
Referring to these precedents, the court emphasized, “The provisions of Section 30(2)(b)(ii) by law provide assurance to the dissenting creditors that they will receive, as money, the amount they would have received in the liquidation proceedings. This rule also applies to the operational creditors, ensuring that dissenting creditors receive the payment of the value of their security interest.”
Highlighting the legislative intent behind Section 30(2)(b)(ii), the court argued that the provision was enacted to safeguard the minority autonomy of creditors. It underscored that this provision should not be interpreted in a manner that nullifies the minimum entitlement of dissenting financial creditors.
The court expressed reservations about certain portions of the India Resurgence judgment, particularly in paragraphs 17, 21, and 22. It clarified that while dissenting financial creditors cannot object to the resolution plan, they have the right to object to the distribution of proceeds under the plan if it falls short of what they would be entitled to in case of liquidation.
Rejecting the argument that Section 30(2)(b)(ii) is unworkable, the court clarified that the dissenting financial creditor’s position is akin to a secured creditor voluntarily relinquishing security under Section 53(1)(b)(ii) of the Code.
Given the divergence from the coordinate bench’s judgment, the Supreme Court deemed it fitting to refer the issue to a larger bench, signaling a significant development in the evolving landscape of insolvency and bankruptcy jurisprudence.
