COMMITTEE OF CREDITORS OF ESSAR STEEL INDIA LIMITED THROUGH AUTHORISED SIGNATORY versus SATISH KUMAR GUPTA & ORS. on 15 November 2019

COMMITTEE OF CREDITORS OF ESSAR STEEL INDIALIMITED THROUGH AUTHORISED SIGNATORY

v.

SATISH KUMAR GUPTA & ORS.

(Civil Appeal No. 8766-67 of 2019)

NOVEMBER 15, 2019

[R. F. NARIMAN, SURYA KANT ANDV. RAMASUBSRAMANIAN, JJ.]

Insolvency and Bankruptcy Code, 2016 – CorporateInsolvency Resolution Process – Power of Committee of creditorsto approve resolution plan - On facts, resolution plans forCorporate debtor-Essar Steel India Limited – In CIRP of corporatedebtor, ArcelorMittal India was successful resolution applicant –Resolution plan of ArcelorMittal specifically providing for anupfront payment of INR 35,000 crores in order to resolve debtsamounting to INR 42,213 crores – Approval of final resolution planof Arcelor Mittal by Committee of Creditors – Initiation of severalproceedings – NCLT allowed the resolution plan – Challenge to,before NCLAT – NCLAT held that there can be no differencebetween a financial creditor and operational creditor in the matterof payment of dues; thus, NCLAT re-distributed the proceedspayable under the approved resolution plan as per the method ofcalculation adopted by it so that all financial creditors andoperational creditors be paid 60.7% of their admitted claims;NCLAT directed that each financial creditor (whether secured orunsecured) with a claim equal to or more than INR 10 lakhs bepaid 60.7% of its admitted claim irrespective of their securityinterest; that operational creditors with a claim of equal to or morethan INR 1 crore be paid 60.268% of their admitted claims; thatCommittee of Creditors not empowered to decide the manner ofdistribution to be made between one or other creditors; that s. 53cannot be applied during the corporate resolution process but willapply only at the stage of liquidation; and that the claims decidedby the resolution professional and affirmed by the AdjudicatingAuthority or the Appellate Tribunal are final and binding on allcreditors – On appeal, held: Order by NCLAT which substitutes itswisdom for the commercial wisdom of the Committee of Creditors

A

B

CDEF

G

H

Aand also directs the admission of a number of claims which wasdone by the resolution applicant, is set aside - CIRP of thecorporate debtor will take place in accordance with the resolutionplan of ArcelorMittal dated 23.10.2018, as amended and acceptedby the Committee of Creditors on 27.03.2019, as it has providedfor amounts to be paid to different classes of creditors by followingBs. 30(2) and Regulation 38 of the Code.

Insolvency and Bankruptcy Code, 2016 – Resolutionprofessional – Role of, in the revival of the corporate debtor –Held: Role of resolution professional is not adjudicatory butadministrative - Resolution professional manages the affairs of theCcorporate debtor as a going concern from the stage of admissionof an application u/ss. 7, 9 or 10 - He appoints and convenesmeetings of the Committee of Creditors – He collects, collates andfinally admit claims of all creditors, which must then be examinedfor payment, by the resolution applicant and be finally negotiatedDand decided by the Committee of Creditors.

Prospective resolution applicant - Role of – Explained.

Prospective resolution applicant - Role of – Explained.

Insolvency and Bankruptcy Code, 2016 – Committee ofcreditors - Role of, in the corporate resolution process – Held:Committee of Creditors decides on whether or not to rehabilitateEthe corporate debtor by means of acceptance of a particularresolution plan – Committee of Creditors may approve a resolutionplan by a vote of not less than 66% of the voting share of thefinancial creditors, after considering its feasibility and viability,and various other requirements as may be prescribed by theRegulations - Ultimately it is the commercial wisdom of theFCommittee of Creditors which operates to approve the bestresolution plan, which is finally accepted after negotiation of itsterms by such Committee with prospective resolution applicants –Furthermore, the Committee of Creditors does not act in anyfiduciary capacity to any group of creditors, on the contrary, it isGto take a business decision based upon ground realities by amajority, which then binds all stakeholders, including dissentientcreditors - Thus, commercial wisdom of this majority of creditorsis important which is to determine, through negotiation with theprospective resolution applicant, as to how and in what mannerthe corporate resolution process is to take place –ss. 21, 24, 28,H29, 30 and 31.

Insolvency and Bankruptcy Code, 2016 – National CompanyLaw Tribunal- Adjudicating Authority and National Company LawAppellate Tribunal-Appellate Tribunal under – Jurisdiction of, quaresolution approved by Committee of Creditors – Held: AdjudicatingAuthority’s jurisdiction is circumscribed by s. 30(2) and AppellateTribunal’s jurisdiction is circumscribed by s. 32 rw s. 61(3) -Adjudicating Authority cannot interfere on merits with thecommercial decision taken by the Committee of Creditors, thelimited judicial review available is to see that the Committee ofCreditors has taken into account the fact that the corporate debtorneeds to keep going as a going concern during the insolvencyresolution process; that it needs to maximise the value of its assets;and that the interests of all stakeholders including operationalcreditors has been taken care of - If the Adjudicating Authorityfinds, on a given set of facts, that the said parameters have notbeen kept in view, it may send a resolution plan back to theCommittee of Creditors to re-submit such plan after satisfying thesaid parameters - Reasons given by the Committee of Creditorswhile approving a resolution plan may be looked at by theAdjudicating Authority only from this point of view, and once it issatisfied that Committee of Creditors has paid attention to thesekey features, it must then pass the resolution plan, other thingsbeing equal.

Insolvency and Bankruptcy Code, 2016 – Secured andunsecured creditors – Equality principle – Held: Secured andunsecured financial creditors are differentiated when it comes toamounts to be paid under a resolution plan, together with whatdissenting secured or unsecured financial creditors are to be paid- Operational creditors are separately viewed from these securedand unsecured financial creditors in S.No.5 of paragraph 7 ofstatutory Form H - Thus, it can be seen that the Code and theRegulations, read as a whole, lead to the conclusion that theequality principle cannot be stretched to treating unequals equally,as that will destroy the very objective of the Code to resolve stressedassets - Equitable treatment is to be accorded to each creditordepending upon the class to which it belongs: secured orunsecured, financial or operational.

AB

C

DEF

G

H

AB

C

DEF

G

H

AInsolvency and Bankruptcy Code, 2016 – s. 21(8), 28 -Constitution of a sub-committee by the Committee of Creditors –Permissibility of – Plea that the Committee of Creditors delegatedits functions to a sub-committee, as a result of which, the sub-committee secretly made negotiations with ArcelorMittal – Held:Section 28(1)(h) provides that though the powers of Committee ofBCreditors are administrative in nature, they shall not be delegatedto any other person – Power of approval of resolution plan u/s.30(4), also cannot be delegated to any other body - However, sub-committees can be appointed for the purpose of negotiating withresolution applicants, or for performing other ministerial orCadministrative acts, provided such acts are in the ultimate analysisapproved and ratified by the Committee of Creditors – On facts,every single administrative decision qua approving andadministering the resolution plan submitted by ArcelorMittal wasin fact done by the requisite majority of the Committee of Creditors itself, the sub-committee having been used only for purposes ofDinitiating proceedings and negotiating with ArcelorMittal, whichultimately culminated in the resolution plan as finally negotiated,being passed by the requisite majority of creditors - StandardChartered Bank voted in favour of the constitution of a sub-committee and also requested for inclusion of its name in sub-ECommittee, however, when the Standard Chartered Bank found thatthings were going against it that it started raising objections onthe technical plea that sub-committees cannot be constituted underthe Code, thus, plea was not bonafide and is rejected.

Insolvency and Bankruptcy Code, 2016 – s. 31(1) - FExtinguishment of Personal Guarantees and Undecided Claims –Held: s. 31(1) makes it clear that once a resolution plan isapproved by the Committee of Creditors it shall be binding on allstakeholders, including guarantors – It cannot be said that partof the resolution plan which states that the claims of the guarantor on account of subrogation shall be extinguished, cannot be appliedGto the guarantees furnished by the erstwhile directors of thecorporate debtor – A successful resolution applicant cannotsuddenly be faced with “undecided” claims after the resolution plansubmitted by him has been accepted as this would lead touncertainty regarding amounts payable by a prospective resolutionHapplicant who successfully took over the business of the corporate COMMITTEE OF CREDITORS OF ESSAR STEEL INDIA LTD.v. SATISH KUMAR GUPTA

debtor - All claims must be submitted to and decided by theresolution professional so that a prospective resolution applicantknows exactly what has to be paid in order that it may then takeover and run the business of the corporate debtor - Successfulresolution applicant does on a fresh slate.

Insolvency and Bankruptcy Code (Amendment) Act, 2019 –ss. 4 and 6 – Constitutional Validity of – Held: As regards s. 4 ofthe Amendment Act, it is clear that as per s. 12 of the principalAct, the Corporate Insolvency Resolution proceedings should bemandatorily completed within a period of 330 days including anyextension and legal proceedings related to resolution process ofcorporate debtor – Further grace period of 90 days is given,failing which corporate debtor shall be sent into liquidation – Whileleaving the provision otherwise intact, the word “mandatorily” isstruck down as being manifestly arbitrary under Article 14 of theConstitution and as being an excessive and unreasonablerestriction on the litigant’s right to carry on business under Article19(1)(g) of the Constitution – As regards, the substitution of s.30(2)(b) by s. 6 of the Amending Act of 2019, it is constitutionallyvalid since the substituted s. 30(2)(b) is in fact a beneficialprovision in favour of operational creditors and dissentientfinancial creditors as they are now to be paid a certain minimumamount, the minimum in the case of operational creditors being thehigher of the two figures calculated under sub-clauses (i) and (ii)of clause (b), and the minimum in the case of dissentient financialcreditor being a minimum amount that was not earlier payable –Furthermore, Explanation 1 and 2 as also sub-clause (b) of s. 6of the Amending Act of 2019, is constitutionally valid.

Disposing of the appeals and the writ petitions, the Court

HELD:

Role of the resolution professional

1. The resolution professional is a person who is not onlyto manage the affairs of the corporate debtor as a going concernfrom the stage of admission of an application under Sections 7,9 or 10 of the Insolvency and Bankruptcy Code, 2016 till aresolution plan is approved by the Adjudicating Authority, butis also a key person who is to appoint and convene meetings of A

BC

D

EF

G

H

Athe Committee of Creditors, so that they may decide uponresolution plans that are submitted in accordance with thedetailed information given to resolution applicants by theresolution professional. Another very important function of theresolution professional is to collect, collate and finally admitclaims of all creditors, which must then be examined for payment,Bin full or in part or not at all, by the resolution applicant and befinally negotiated and decided by the Committee of Creditors.In Arcelor Mital India case, it is made clear that the role ofresolution professional is not adjudicatory but administrative.[Para 27] [329-F-G; 330-A-B]CArcelorMittal India Private Limited v. Satish KumarGupta (2019) 2 SCC 1 : [2018] 12 SCR 362 – reliedon.

Role of the prospective resolution applicant

Role of the prospective resolution applicant 2.1 Under the Insolvency Code, the prospective resolutionDapplicant has a right to receive complete information as to thecorporate debtor, debts owed by it, and its activities as a goingconcern, prior to the admission of an application under section7, 9 or 10 of the Code. For this purpose, it has a right to receiveinformation contained in the information memorandum as wellEas the evaluation matrix mentioned in Regulation 36-B. Once itevinces an expression of interest, what follows is laid down inRegulation 36- A(7). Thereafter, the resolution plan submittedby the prospective resolution applicant must provide formeasures as may be necessary for the insolvency resolution ofthe corporate debtor for maximisation of the value of its assets,Fwhich may include transfer or sale of assets or part thereof,whether subject to security interests or not. Regulation 37states that the plan may provide for either satisfaction ormodification of any security interest of a secured creditor andmay also provide for reduction in the amount payable to differentclasses of creditors – see Regulation 37. [Para 29] [333-H; 334-GA-B; 335-B-C]

2.2 Regulation 38 deals with the mandatory contents of aresolution plan, making it clear that such plan must contain aprovision that the amount due to operational creditors shall begiven priority in payment over financial creditors (RegulationH38(1)). Such plan must also include provisions as to how to deal with the interests of all stakeholders including financial creditorsand operational creditors of the corporate debtor (Regulation 38(1A)). It must then provide for the term of the plan, managementand control of the business of the corporate debtor during suchterm, and its implementation. It must also demonstrate that itis feasible and viable, and that the resolution applicant has thecapability to implement the said plan. [Para 30] [335-B-C]

Role of the committee of creditors in the corporateresolution process 3.1 Since it is the commercial wisdom of the Committeeof Creditors to decide on whether or not to rehabilitate thecorporate debtor by means of acceptance of a particularresolution plan, the provisions of the Code and the Regulationsoutline in detail the importance of setting up of such Committee,and leaving decisions to be made by the requisite majority ofthe members of the said Committee in its discretion. Thus,Section 21(2) of the Code mandates that the Committee ofCreditors shall comprise all financial creditors of the corporatedebtor. “Financial creditors” are defined in Section 5(7) of theCode as meaning persons to whom a financial debt is owed andincludes a person to whom such debt has been legally assignedor transferred. “Financial debt” is then defined in Section 5(8)of the Code as meaning a debt along with interest, if any, whichis disbursed against the consideration for the time value ofmoney. “Secured creditor” is separately defined in Section 3(30)of the Code as meaning a creditor in favour of whom a securityinterest is created and “security interest” is defined by Section3(31). [Para 31] [336-D-F]

3.2 In order to trigger application of the Code, a neatdivision has been made between financial creditors andoperational creditors. Most financial creditors are securedcreditors and most operational creditors are unsecured creditors.The rationale for only financial creditors handling the affairs ofthe corporate debtor and resolving them is for reasons that havebeen deliberated upon by the BLRC Report of 2015, whichformed the basis for the enactment of the Insolvency Code. [Para32] [337-B-C]

3.3 Section 24 of the Code deals with meetings of theCommittee of Creditors. Though voting on the approval of a AB

CDE

F

G

H

Aresolution plan is only with the financial creditors who form theCommittee of Creditors, yet the resolution professional is toconduct the said meeting at which members of the suspendedboard of directors may be present, together with onerepresentative of operational creditors, provided that theaggregate dues owed to all operational creditors is not less thanB10% of the entire debt owed (Sections 24(2), (3) and (4) )of theCode. Voting shall be in accordance with the voting shareassigned to each financial creditor, which is based on the financialdebts owed to such creditors (Section 24(6)) of the Code. [Para35] [340-G-H; 341-A]

C3.4 Even though it is the resolution professional who isto run the business of the corporate debtor as a going concernduring the intermediate period, yet, such resolution professionalcannot take certain decisions relating to management of thecorporate debtor without the prior approval of at least 66% ofDthe votes of the Committee of Creditors. Thus, it is clear thatsince corporate resolution is ultimately in the hands of themajority vote of the Committee of Creditors, nothing can be donequa the management of the corporate debtor by the resolutionprofessional which impacts major decisions to be made in theinterregnum between the taking over of management of theEcorporate debtor and corporate resolution by the acceptance ofa resolution plan by the requisite majority of the Committee ofCreditors. Most importantly, under Section 30(4), the Committeeof Creditors may approve a resolution plan by a vote of not lessthan 66% of the voting share of the financial creditors, afterFconsidering its feasibility and viability, and various otherrequirements as may be prescribed by the Regulations. [Para36] [341-B; 342-G-H; 343-A]

3.5 Regulation 18 to 26 of the 2016 Regulations deal withmeetings to be conducted by the Committee of Creditors.Regulation 39(3) fleshes out Section 30(4) of the Code, makingGit clear that ultimately it is the commercial wisdom of theCommittee of Creditors which operates to approve what isdeemed by a majority of such creditors to be the best resolutionplan, which is finally accepted after negotiation of its terms bysuch Committee with prospective resolution applicants. [Para 37,H38] [343-B-E]

3.6 The importance of the majority decision of theCommittee of Creditors is then stated in Section 31(1) of theCode. What is left to the majority decision of the Committee ofCreditors is the “feasibility and viability” of a resolution plan,which obviously takes into account all aspects of the plan,including the manner of distribution of funds among the variousclasses of creditors. The commercial wisdom of this majority ofcreditors is important which is to determine, through negotiationwith the prospective resolution applicant, as to how and in whatmanner the corporate resolution process is to take place. [Para40] [346-B-C; B-F]

K. Sashidhar v. Indian Overseas Bank (2019) SCCOnline SC 257 – referred to.

Jurisdiction of the Adjudicating Authority and theAppellate Tribunal

4.1 It is the Adjudicating Authority which first admits anapplication by a financial or operational creditor, or by thecorporate debtor itself under Section 7, 9 and 10 of the Code.Once this is done, within the parameters fixed by the Code. TheAdjudicating Authority then appoints an interim resolutionprofessional who takes administrative decisions as to the dayto day running of the corporate debtor; collation of claims andtheir admissions; and the calling for resolution plans. After aresolution plan is approved by the requisite majority of theCommittee of Creditors, the aforesaid plan must then passmuster of the Adjudicating Authority under Section 31(1) of theCode. The Adjudicating Authority’s jurisdiction is circumscribedby Section 30(2) of the Code. Thus, it is clear that the limitedjudicial review available, which can in no circumstance trespassupon a business decision of the majority of the Committee ofCreditors, has to be within the four corners of Section 30(2) ofthe Code, insofar as the Adjudicating Authority is concerned, andSection 32 read with Section 61(3) of the Code, insofar as theAppellate Tribunal is concerned, the parameters of such reviewhaving been clearly laid down in K. Sashidhar case. [Para 41,42] [347-A-D; 353-B]

Innoventive Industries Ltd. v. ICICI Bank, (2018) 1SCC 407 : [2017] 8 SCR 33 ; Macquarie Bank Ltd v.

AB

C

DEF

G

H

AShilpi Cable Technologies Ltd. (2018) 2 SCC 674[2017] 13 SCR 751 ; K. Sashidhar v. Indian OverseasBank (2019) SCC Online SC 257 – relied on.

4.2 It was submitted that K. Sashidhar case missed a veryvital provision of the Code which is contained in Section 60(5)Bof the Code; that the non-obstante clause of Section 60(5)speaks of any other lawfor the time being in force, whichobviously cannot include the provisions of the Code itself.Secondly, Section 60(5)(c) is in the nature of a residuaryjurisdiction vested in the NCLT so that the NCLT may decideall questions of law or fact arising out of or in relation toCinsolvency resolution or liquidation under the Code. Suchresidual jurisdiction does not in any manner impact Section 30(2)of the Code which circumscribes the jurisdiction of theAdjudicating Authority when it comes to the confirmation of aresolution plan, as has been mandated by Section 31(1) of theDCode. A harmonious reading, therefore, of Section 31(1) andSection 60(5) of the Code would lead to the result that theresidual jurisdiction of the NCLT under Section 60(5)(c) cannot,in any manner, whittle down Section 31(1) of the Code, by theinvestment of some discretionary or equity jurisdiction in theEAdjudicating Authority outside Section 30(2) of the Code, whenit comes to a resolution plan being adjudicated upon by theAdjudicating Authority. This argument is rejected. [Para 43][353-G-H; 354-A-B]

4.3 The minimum value that is required to be paid toFoperational creditors under a resolution plan is set out underSection 30(2)(b) of the Code as being the amount to be paid tosuch creditors in the event of a liquidation of the corporatedebtor under Section 53. The Insolvency Committee constitutedby the Government in 2018 was tasked with studying the majorissues that arise in the working of the Code and to recommendGchanges, if any, required to be made to the Code. The InsolvencyCommittee Report, 2018, inter alia, deliberated upon theobjections to Section 30(2)(b) of the Code, inasmuch as itprovided for a minimum payment of a “liquidation value” to theoperational creditors and nothing more. Ultimately, theHCommittee decided against any amendment to be made to the

existing scheme of the Code, thereby retaining the prescriptionas to the minimum value that was to be paid to the operationalcreditors under a resolution plan. However, the operationalcreditors, the preamble of the Code does speak of maximisationof the value of assets of corporate debtors and the balancing ofthe interests of all stakeholders. There is no doubt that a keyobjective of the Code is to ensure that the corporate debtorkeeps operating as a going concern during the insolvencyresolution process and must therefore make past and presentpayments to various operational creditors without which suchoperation as a 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 a going concern during theinsolvency resolution process. Workmen need to be paid,electricity dues need to be paid, purchase of raw materials needto be made, etc. [Para 44, 45] [354-C-D; 356-E-G]

4.4 Regulation 38(1A) speaks of a resolution plan includinga statement as to how it has dealt with the interests of allstakeholders, including operational creditors of the corporatedebtor. Regulation 38(1) also states that the amount due tooperational creditors under a resolution plan shall be givenpriority in payment over financial creditors. If nothing is to bepaid to operational creditors, the minimum, being liquidationvalue - which in most cases would amount to nil after securedcreditors have been paid - would certainly not balance theinterest of all stakeholders or maximise the value of assets of acorporate debtor if it becomes impossible to continue runningits business as a going concern. Thus, it is clear that when theCommittee of Creditors exercises its commercial wisdom toarrive at a business decision to revive the corporate debtor, itmust necessarily take into account these key features of theCode before it arrives at a commercial decision to pay off thedues of financial and operational creditors. There is no doubtwhatsoever that the ultimate discretion of what to pay and howmuch to pay each class or sub-class of creditors is with theCommittee of Creditors, but, the decision of such Committeemust reflect the fact that it has taken into account maximisingthe value of the assets of the corporate debtor and the fact that AB

C

D

EF

G

H

Ait has adequately balanced the interests of all stakeholdersincluding operational creditors. This being the case, judicialreview of the Adjudicating Authority that the resolution plan asapproved by the Committee of Creditors has met therequirements referred to in Section 30(2) would include judicialreview that is mentioned in Section 30(2)(e), as the provisionsBof the Code are also provisions of law for the time being in force.Thus, while the Adjudicating Authority cannot interfere on meritswith the commercial decision taken by the Committee ofCreditors, the limited judicial review available is to see that theCommittee of Creditors has taken into account the fact that the Ccorporate debtor needs to keep going as a going concern duringthe insolvency resolution process; that it needs to maximise thevalue of its assets; and that the interests of all stakeholdersincluding operational creditors has been taken care of. If theAdjudicating Authority finds, on a given set of facts, that the saidparameters have not been kept in view, it may send a resolutionDplan back to the Committee of Creditors to re-submit such planafter satisfying the said parameters. The reasons given by theCommittee of Creditors while approving a resolution plan maythus be looked at by the Adjudicating Authority only from thispoint of view, and once it is satisfied that the Committee ofECreditors has paid attention to these key features, it must thenpass the resolution plan, other things being equal. [Para 46] [358-A-H; 359-A]

Secured and unsecured creditors; the equality principle

Secured and unsecured creditors; the equality principle 5.1 There is no doubt that even under the Code,Freorganisation is a collective remedy designed to find anoptimum solution for all parties connected with a business in themanner provided by the Code. Protecting creditors in generalis, no doubt, an important objective, protecting creditors fromeach other is also important. What is meant by protectingGcreditors from each other is only that a Bankruptcy Code shouldnot be read so as to imbue creditors with greater rights in abankruptcy proceeding than they would enjoy under the generallaw, unless it is to serve some bankruptcy purpose. [Para 49][365-G-H]American Jurisprudence 2d, Volume 9 – referred to.H

5.2 The World Bank Report of 2010, titled “A Global Viewof Business Insolvency Systems” is an earlier report, whichopined on the basis of the French system, that creditors aredivided into two separate classes without any further sub-classification and that the advantage of such system is that itavoids potential conflict of interest among creditors in a particularclass. Even according to this report, therefore, a “cramdown”on dissentient creditors would pass muster under an insolvencylaw if such creditors will receive, under a resolution plan, anamount at least equal to what such creditors would receive in aliquidation proceeding being “liquidation value”. [Para 52] [369-B-E]

IMF paper on Development of Standards for SecurityInterest by Pascale De Boeck and Thomas Laryea,Counsel, IMF Legal Department; World Bank Reportof 2010, titled “A Global View of Business InsolvencySystems”; Principles of International Insolvency byPhilip R Wood’s – referred to.

5.3 Indeed, if an “equality for all” approach recognisingthe rights of different classes of creditors as part of an insolvencyresolution process is adopted, secured financial creditors will,in many cases, be incentivised to vote for liquidation rather thanresolution, as they would have better rights if the corporatedebtor was to be liquidated rather than a resolution plan beingapproved. This would defeat the entire objective of the Codewhich is to first ensure that resolution of distressed assets takesplace and only if the same is not possible should liquidationfollow. [Para 54] [370-F-G]

5.4 Financial creditors are in the business of lendingmoney. It is clear that financial creditors earn profit by earninginterest on money lent with low margins, generally beingbetween 1 to 4%. Also, financial creditors are capital providersfor companies, who in turn are able to purchase assets andprovide a working capital to enable such companies to run theirbusiness operation, whereas operational creditors arebeneficiaries of amounts lent by financial creditors which arethen used as working capital, and often get paid for goods andservices provided by them to the corporate debtor, out of such A

B

C

D

EF

G

H

Aworking capital. On the other hand, market research carried outby India Brand Equity Foundation, a trust established by theMinistry of Commerce and Industry, as regards the Oil and Gassector, has stated that the business risk of operational creditorswho operate with higher profit margins and shorter cyclicalrepayments must needs be higher. Also, operational creditorsBhave an immediate exit option, by stopping supply to thecorporate debtor, once corporate debtors start defaulting inpayment. Financial creditors may exit on their long-term loans,either upon repayment of the full amount or upon default, byrecalling the entire loan facility and/or enforcing the securityCinterest which is a time consuming and lengthy process whichusually involves litigation. Financial creditors are also part of aregulated banking system which involves not merely declaringdefaulters as non-performing assets but also involvesrestructuring such loans which often results in foregoing unpaidamounts of interest either wholly or partially. [Para 55] [370-H;D371-A-E]

5.5 By reading paragraph 77 of the Swiss Ribbons case, dehors the earlier paragraphs, the Appellate Tribunal has fallen intograve error. Paragraph 76 clearly refers to the UNCITRALLegislative Guide which makes it clear beyond any doubt thatEequitable treatment is only of similarly situated creditors. Thisbeing so, the observation in paragraph 77 cannot be read to meanthat financial and operational creditors must be paid the sameamounts in any resolution plan before it can pass muster. Onthe contrary, paragraph 77 itself makes it clear that there is aFdifference in payment of the debts of financial and operationalcreditors, operational creditors having to receive a minimumpayment, being not less than liquidation value, which does notapply to financial creditors. The amended Regulation 38 set outin 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,under the resolution plan before it can pass muster. Fair andequitable dealing of operational creditors’ rights under the saidRegulation involves the resolution plan stating as to how it hasdealt with the interests of operational creditors, which is not theHsame thing as saying that they must be paid the same amount of their debt proportionately. Also, the fact that the operationalcreditors are given priority in payment over all financial creditorsdoes not lead to the conclusion that such payment mustnecessarily be the same recovery percentage as financialcreditors. So long as the provisions of the Code and theRegulations have been met, it is the commercial wisdom of therequisite majority of the Committee of Creditors which is tonegotiate and accept a resolution plan, which may involvedifferential payment to different classes of creditors, togetherwith negotiating with a prospective resolution applicant for betteror different terms which may also involve differences indistribution of amounts between different classes of creditors.[Para 56] [375-D-H; 376-A-B]

5.6 Indeed, by vesting the Committee of Creditors withthe discretion of accepting resolution plans only with financialcreditors, operational creditors having no vote, the Code itselfdifferentiates between the two types of creditors. Most financialcreditors are secured creditors, whose security interests mustbe protected in order that they do not go ahead and realise theirsecurity in legal proceedings, but instead are incentivised to actwithin the framework of the Code as persons who will resolvestressed assets and bring a corporate debtor back to its feet.The argument that the expression “secured creditor” does notfind mention in Chapter II of the Code, which deals with theresolution process, and is only found in Chapter III, which dealswith liquidation, is for the reason that secured creditors as a classare subsumed in the class of financial creditors. Indeed,Regulation 13(1) of the 2016 Regulations mandates that whenthe resolution professional verifies claims, the security interestof secured creditors is also looked at and gets taken care of.Similarly, Regulation 36(2)(d) when it provides for a list ofcreditors and the amounts claimed by them in the informationmemorandum (which is to be submitted to prospective resolutionapplicants), also provides for the amount of claims admitted andsecurity interest in respect of such claims. Under Regulation39(4), the compliance certificate of the resolution professionalas to the CIRP being successful is contained in Form H to theRegulations. [Para 57] [376-B-F]

ABC

D

EF

G

H

[2019] 16 S.C.R.

ASwiss Ribbons Private Limited v. Union of India (2019)4 SCC 17 : [2019] 3 SCR 535 – referred to.

5.7 Secured and unsecured financial creditors aredifferentiated when it comes to amounts to be paid under aresolution plan, together with what dissenting secured orBunsecured financial creditors are to be paid. And, mostimportantly, operational creditors are separately viewed fromthese secured and unsecured financial creditors in S.No.5 ofparagraph 7 of statutory Form H. Thus, it can be seen that theCode and the Regulations, read as a whole, together with theobservations of expert bodies and this Court’s judgment, all leadCto the conclusion that the equality principle cannot be stretchedto treating unequals equally, as that will destroy the veryobjective of the Code - to resolve stressed assets. Equitabletreatment is to be accorded to each creditor depending upon theclass to which it belongs: secured or unsecured, financial oroperational. [Para 57] [377-D-F]D

5.8 It is the Committee of Creditors, under Section 30(4)read with Regulation 39(3), that is vested with the power toapprove resolution plans and make modifications therein as theCommittee deems fit. It is this vital difference between thejurisdiction of the High Court under Section 392 of theECompanies Act, 1956 and the jurisdiction of the AdjudicatingAuthority under the Code that must be kept in mind when theAdjudicating Authority is to decide on whether a resolution planpasses muster under the Code. When this distinction is kept inmind, it is clear that there is no residual jurisdiction not toFapprove a resolution plan on the ground that it is unfair or unjustto a class of creditors, so long as the interest of each class hasbeen looked into and taken care of. [Para 58] [379-G-H; 380-A]

Mihir R. Mafatlal v. Mafatlal Industries Ltd. (1997) 1SCC 579 : [1996] 6 Suppl. SCR 1 – referred to.GThe constitution of a sub-committee by the Committee ofCreditors 6.1 The submission of the counsel for Standard CharteredBank centered around the fact that the Committee of CreditorsHdelegated its functions to a sub-committee, which delegation is impermissible. As a result of this delegation, the sub-committeesecretly made negotiations with ArcelorMittal, which secretnegotiations then produced a wholly inequitable result in thatStandard Chartered Bank, though a financial creditor, was onlypaid 1.74% of its admitted claim of INR 3487 crores as opposedto other financial creditors who were paid 74.8% of what wasclaimed by them. [Para 59]

6.2 Under Section 21(8) of the Code, all decisions by theCommittee of Creditors can be taken by a 51% majority vote,unless, a higher percentage is required under other specificprovisions of the Code. When it comes to the exercise of theCommittee of Creditors’ powers on questions which have a vitalbearing on the running of the business of the corporate debtor,Section 28(1)(h) provides that though these powers areadministrative in nature, they shall not be delegated to any otherperson, meaning thereby, that the Committee of Creditors alonemust take the decisions mentioned in Section 28 and not anyperson other than such Committee. When it comes to approvinga resolution plan under Section 30(4), there is no doubtwhatsoever that this power also cannot be delegated to any otherbody as it is the Committee of Creditors alone that has beenvested with this important business decision which it must takeby itself. However, this does not mean that sub-committeescannot be appointed for the purpose of negotiating withresolution applicants, or for the purpose of performing otherministerial or administrative acts, provided such acts are in theultimate analysis approved and ratified by the Committee ofCreditors. Having gone through the minutes of all the importantcreditors’ meetings that were held, it is found that every singleadministrative decision qua approving and administering theresolution plan submitted by ArcelorMittal was in fact done bythe requisite majority of the Committee of Creditors itself, thesub- committee having been used only for purposes of initiatingproceedings and negotiating with ArcelorMittal, which ultimatelyculminated in the resolution plan as finally negotiated, beingpassed by the requisite majority of creditors on 23.10.2018. Inpoint of fact, Standard Chartered Bank voted in favour of theconstitution of a sub-committee on the 12[th] committee ofcreditors meeting of 02.05.2018, as also, in favour of decisions AB

C

D

E

F

G

H

Aof the Committee of Creditors finalizing drafts of sub-committeeson eligibility of resolution applicants at the 13[th] Committee ofCreditors meeting on 05.05.2018. Also, as a matter of fact, on31.05.2018, at the 16[th] Committee of Creditors meeting, arequest was made by Standard Chartered Bank to be a memberof the sub-committee, which request was later withdrawn. In theBauthorisation to the sub-committee to negotiate withArcelorMittal, mooted at the 20[th] Committee of Creditorsmeeting on 19.10.2018, a request was made by StandardChartered Bank for inclusion in the said sub-committee.However, Standard Chartered Bank did not agree to put theCreconstitution of the sub- committee to vote by the Committeeof Creditors. Given these facts, thus, it is only when StandardChartered Bank found that things were going against it that itstarted raising objections on the technical plea that sub-committees cannot be constituted under the Code. This is nota bonafide plea. The this objection of Standard Chartered BankDis also rejected. [Para 60, 62] [380-E; 383-A-H; 384-A]

Pradyat Kumar Bhose v. The Hon’ble the Chief Justiceof Calcutta High Court [1955] 2 SCR 1331 ; HighCourt of Judicature at Bombay through its Registrarv. Shirishkumar Rangrao Patil & Anr. (1997) 6 SCCE339: [1997] 3 SCR 1131 – referred to.

Extinguishment of Personal Guarantees and UndecidedClaims

7.1 Section 31(1) of the Code makes it clear that once aFresolution plan is approved by the Committee of Creditors itshall be binding on all stakeholders, including guarantors. Thisis for the reason that this provision ensures that the successfulresolution applicant starts running the business of the corporatedebtor on a fresh slate as it were. [Para 65] [386-E-F]G

7.2 Following the State Bank of India’s judgment, it isdifficult to accept the submission that that part of the resolutionplan which states that the claims of the guarantor on account ofsubrogation shall be extinguished, cannot be applied to theguarantees furnished by the erstwhile directors of the corporateHdebtor. So far as the instant case is concerned, nothing is said COMMITTEE OF CREDITORS OF ESSAR STEEL INDIA LTD.v. SATISH KUMAR GUPTA

which may affect the pending litigation on account of invocationof these guarantees. However, the NCLAT judgment beingcontrary to Section 31(1) of the Code and this Court’s judgmentin State Bank of India case, is set aside. [Para 66] [387-C-D]

State Bank of India v. V. Ramakrishnan, (2018) 9SCALE 597 – relied on.

7.3 The impugned NCLAT judgment in holding that claimsthat may exist apart from those decided on merits by theresolution professional and by the Adjudicating Authority/Appellate Tribunal can now be decided by an appropriate forumin terms of Section 60(6) of the Code, also militates against therationale of Section 31 of the Code. A successful resolutionapplicant cannot suddenly be faced with “undecided” claims afterthe resolution plan submitted by him has been accepted as thiswould amount to a hydra head popping up which would throwinto uncertainty amounts payable by a prospective resolutionapplicant who successfully take over the business of thecorporate debtor. All claims must be submitted to and decidedby the resolution professional so that a prospective resolutionapplicant knows exactly what has to be paid in order that it maythen take over and run the business of the corporate debtor.This the successful resolution applicant does on a fresh slate.For these reasons, the NCLAT judgment must also be set asideon this count. [Para 67] [387-E-G]

Utilisation of profits of the corporate debtor during CIRPto pay off creditors

8. The RFP issued in terms of Section 25 of the Code andconsented to by ArcelorMittal and the Committee of Creditorshad provided that distribution of profits made during thecorporate insolvency process will not go towards payment ofdebts of any creditor (Clause 7 of the first addendum to the RFPdated 08.02.2018). On this short ground, this part of thejudgment of the NCLAT is also incorrect. [Para 68] [387-H; 388-A]

Constitutional Validity of Section 4 and 6 of the AmendingAct, 2019

9.1 There is no doubt that the Amending Act of 2019consists of several Sections which have been enacted/amended A

B

C

D

E

F

G

H

Aas difficulties have arisen in the working of the Code. While itis true that it may well be that the law laid down by the NCLATin this very case forms the basis for some of these amendments,it cannot be said that the legislature has directly set aside thejudgment of the NCLAT. Since an appeal against the judgmentof the NCLAT lies to the Supreme Court, the legislature is wellBwithin its bounds to lay down laws of general application to allpersons affected, bearing in mind what it considers to be a curingof a defective reading of the law by an Appellate Tribunal. Therecan be no doubt whatsoever that apart from the present casethe amendments made by the Amending Act of 2019 apply downCthe board to all persons who are affected by its provisions. Also,it is settled law that bad faith, in the sense of improper motives,cannot be ascribed to a legislature making laws. Therefore forall these reasons Sections 4 and 6 of the Amending Act of 2019cannot be struck down on this score. [Para 73] [392-H; 393-A-C; 395-B]DGajapati Narayan Deo and Others v. State of Orissa[1954] SCR 1 ; STO v. Ajit Mills Ltd. (1977) 4 SCC98 : [1978] 1 SCR 338 – referred to.

9.2 So far as Section 4 is concerned, it is clear that theEoriginal timelines in which a CIRP must be completed have nowbeen extended to 330 days, which is 60 days more than 180 plus90 days (which is equal to 270 days). But this 330-day periodincludes the time taken in legal proceedings in relation to suchresolution process of the corporate debtor. This provision is toFget over what is stated in the judgment in ArcelorMittal Indiacase, that the time taken in legal proceedings in relation to thecorporate resolution process must be excluded from the timelinementioned in Section 12. Secondly, the third proviso added tothe Section also mandates that where the period of 330 days isover on the date of commencement of the Amending Act ofG2019, a further grace period of 90 days from such date is given,within which such process shall either be completed or thecorporate debtor be sent into liquidation. The raison d’être forthis provision comes from the experience that has been plaguingthe legislature ever since SICA was promulgated. [Para 74, 75]H[395-B-E]

COMMITTEE OF CREDITORS OF ESSAR STEEL INDIA LTD.v. SATISH KUMAR GUPTA

Madras Petrochem Limited v. BIFR (2016) 4 SCC 1 :[2016] 11 SCR 419 – referred to.

9.3 The speech of the Hon’ble Minister on the floor of theHouse of the Rajya Sabha also reflected the fact that with thepassage of time the original intent of quick resolution of stressedassets is getting diluted. It is therefore essential to have time-bound decisions to reinstate this legislative intent. It was alsopointed out on the floor of the House that the experience in theworking of the Code has not been encouraging. As the speechof the Hon’ble Minister on the floor of the House only indicatesthe object for which the amendment was made and as it containscertain data which it is useful to advert to, aid is taken from thespeech not in order to construe the amended Section 12, butonly in order to explain why the Amending Act of 2019 wasbrought about. [Para 76, 77] [397-H; 398-A; 400-F-G]

K.P. Varghese v. ITO [1982] 1 SCR 629 ; K.S.Paripoornan v. State of Kerala (1994) 5 SCC 593 :[1994] 3 Suppl. SCR 405 – referred to.

9.4 Given the fact that timely resolution of stressed assetsis a key factor in the successful working of the Code, the onlyreal argument against the amendment is that the time taken inlegal proceedings cannot ever be put against the parties beforethe NCLT and NCLAT based upon a Latin maxim which sub-serves the cause of justice namely, actus curiae neminemgravabit. [Para 78] [400-G-H]

Atma Ram Mittal v. Ishwar Singh Punia (1988) 4 SCC284 : [1988] 2 Suppl. SCR 528 ; Sarah Mathew v.Institute of Cardio Vascular Diseases, (2014) 2 SCC62 : [2013] 12 SCR 674 ; Neeraj Kumar Sainy v. Stateof Uttar Pradesh (2017) 14 SCC 136 : [2017] 4 SCR881 – referred to.

9.5 The time taken in legal proceedings cannot possiblyharm a litigant if the Tribunal itself cannot take up the litigant’scase within the requisite period for no fault of the litigant, aprovision which mandatorily requires the CIRP to end by acertain date - without any exception thereto - may well be anexcessive interference with a litigant’s fundamental right to non- A

B

C

D

E

F

G

H

Aarbitrary treatment under Article 14 and an excessive, arbitraryand therefore unreasonable restriction on a litigant’s fundamentalright to carry on business under Article 19(1)(g) of theConstitution of India. This being the case, this Court wouldordinarily have struck down the provision in its entirety.However, that would then throw the baby out with the bath water,Binasmuch as the time taken in legal proceedings is certainly animportant factor which causes delay, and which has madeprevious statutory experiments fail as in Madras Petrochem case.Thus, while leaving the provision otherwise intact, the word“mandatorily” is striked down as being manifestly arbitrary underCArticle 14 of the Constitution of India and as being an excessiveand unreasonable restriction on the litigant’s right to carry onbusiness under Article 19(1)(g) of the Constitution. The effectof this declaration is that ordinarilythe time taken in relation tothe corporate resolution process of the corporate debtor mustbe completed within the outer limit of 330 days from theDinsolvency commencement date, including extensions and thetime taken in legal proceedings. However, on the facts of a givencase, if it can be shown to the Adjudicating Authority and/orAppellate Tribunal under the Code that only a short period isleft for completion of the insolvency resolution process beyondE330 days, and that it would be in the interest of all stakeholdersthat the corporate debtor be put back on its feet instead of beingsent into liquidation and that the time taken in legal proceedingsis largely due to factors owing to which the fault cannot beascribed to the litigants before the Adjudicating Authority and/or Appellate Tribunal, the delay or a large part thereof beingFattributable to the tardy process of the Adjudicating Authorityand/or the Appellate Tribunal itself, it may be open in such casesfor the Adjudicating Authority and/or Appellate Tribunal toextend time beyond 330 days. Likewise, even under the newlyadded proviso to Section 12, if by reason of all the said factorsGthe grace period of 90 days from the date of commencement ofthe Amending Act of 2019 is exceeded, there again a discretioncan be exercised by the Adjudicating Authority and/or AppellateTribunal to further extend time keeping the aforesaid parametersin mind. It is only in such exceptional cases that time can beextended, the general rule being that 330 days is the outer limitHwithin which resolution of the stressed assets of the corporate COMMITTEE OF CREDITORS OF ESSAR STEEL INDIA LTD.v. SATISH KUMAR GUPTA

debtor must take place beyond which the corporate debtor isto be driven into liquidation. [Para 79] [402-E-H; 403-A-E]

Madras Petrochem Limited v. BIFR (2016) 4 SCC 1 :[2016] 11 SCR 419 – referred to.

9.6 When it comes to the validity of the substitution ofSection 30(2)(b) by Section 6 of the Amending Act of 2019, it isclear that the substituted Section 30(2)(b) gives operationalcreditors something more than was given earlier as it is thehigher of the figures mentioned in sub-clauses (i) and (ii) of sub-clause (b) that is now to be paid as a minimum amount tooperational creditors. The same goes for the latter part of sub-clause (b) which refers to dissentient financial creditors. Section30(2)(b) is in fact a beneficial provision in favour of operationalcreditors and dissentient financial creditors as they are now tobe paid a certain minimum amount, the minimum in the case ofoperational creditors being the higher of the two figurescalculated under sub-clauses (i) and (ii) of clause (b), and theminimum in the case of dissentient financial creditor being aminimum amount that was not earlier payable. As a matter offact, pre-amendment, secured financial creditors may cramdownunsecured financial creditors who are dissentient, the majorityvote of 66% voting to give them nothing or next to nothing fortheir dues. In the earlier regime it may have been possible tohave done this but after the amendment such financial creditorsare now to be paid the minimum amount mentioned in sub-section (2). The order of priority of payment of creditorsmentioned in Section 53 is not engrafted in sub-section (2)(b)as amended. Section 53 is only referred to in order that a certainminimum figure be paid to different classes of operational andfinancial creditors. It is only for this purpose that Section 53(1)is to be looked at as it is clear that it is the commercial wisdomof the Committee of Creditors that is free to determine whatamounts be paid to different classes and sub-classes of creditorsin accordance with the provisions of the Code and theRegulations made thereunder. [Para 80] [402-E-H; 404-A-C]

9.7 It is clear that Explanation 1 has only been insertedin order that the Adjudicating Authority and the AppellateTribunal cannot enter into the merits of a business decision of A

BC

D

E

F

G

H

Athe requisite majority of the Committee of Creditors. There isno residual equity jurisdiction in the Adjudicating Authority orthe Appellate Tribunal to interfere in the merits of a businessdecision taken by the requisite majority of the Committee ofCreditors, provided that it is otherwise in conformity with theprovisions of the Code and the Regulations. [Para 81] [404-D-BE]

9.8 Equally, Explanation 2 applies the substituted Sectionto pending proceedings either at the level of the AdjudicatingAuthority or the Appellate Authority or in a Writ or Civil Court.No vested right inheres in any resolution applicant to have itsCplan approved under the Code. An appellate proceeding is acontinuation of an original proceeding. This being so, a changein law can always be applied to an original or appellateproceeding. For this reason also, Explanation 2 isconstitutionally valid, not having any retrospective operation soDas to impair vested rights. [Para 82] [404-F-H]

ArcelorMittal India Private Limited v. Satish KumarGupta (2019) 2 SCC 1 : [2018] 12 SCR 362 SwissRibbons Private Limited v. Union of India (2019) 4SCC 17 : [2019] 3 SCR 535 ; Lachmeshwar PrasadEShukul v. Keshwar Lal Chaudhuri AIR 1941 FC 5 ;Shiv Shakti Coop. Housing Society, Nagpur v. SwarajDevelopers & Ors. (2003) 6 SCC 659 – relied on.

9.9 The challenge to sub-clause (b) of Section 6 of theAmending Act of 2019, again goes to the flexibility that the CodeFgives to the Committee of Creditors to approve or not toapprove a resolution plan and which may take into accountdifferent classes of creditors as is mentioned in Section 53, anddifferent priorities and values of security interests of a securedcreditor. This flexibility is referred to in the BLRC report, 2015.Also, the discretion given to the Committee of Creditors by theGword “may” again makes it clear that this is only a guidelinewhich is set out by this sub-section which may be applied by theCommittee of Creditors in arriving at a business decision as toacceptance or rejection of a resolution plan. Thus, it is difficultto hold that any of these provisions is constitutionally infirm.H[Para 83] [405-A-C]

The resolution plan of ArcelorMittal as amended andobjections thereto 10.1 The resolution plan submitted by ArcelorMittal on02.04.2018 proposed an upfront payment of INR 35,000 crorestowards resolution of the debt of INR 49,213 crores of financialcreditors. This was buttressed by a letter of commitment fromCredit Agricole Corporate and Investment Bank. From thisupfront cash recovery, unsecured financial creditors were to bepaid only an aggregate amount of 5% of their admitted claims.Apart from this, INR 8,000 crores of upfront fresh capital infusionfor improving operations and enhancing revival prospects of thecorporate debtor was also proposed. So far as operationalcreditors were concerned, it was proposed that workmen andemployees were to be paid INR 18 crores in full against theiradmitted claims, and out of other operational creditors, thosesmall trade creditors defined as “having admitted claims of lessthan INR 1 crore” were to be paid in full, as opposed to tradeand government creditors of over INR 1 crore, who were to bepaid aggregate amount INR 196 crores. Other operationalcreditors were to be given nothing, liquidation value beingpayable to operational creditors as a class being in any case nil(INR 3339 crores were the aggregate admitted claims of alloperational creditors as a class). [Para 84] [405-D-G]

10.2 On 22.10.2018, various changes were made in theoriginal resolution plan. It was stated that the value and qualityof security should be the basis on which proceeds should bedistributed by most of the secured financial creditors. Thisamended resolution plan was approved by a majority of 92.24%of financial creditors. The sharing ratio between secured financialcreditors having charge on project assets of the corporate debtorwas 99.86% as opposed to 0.14%, so far as Standard CharteredBank was concerned, which only had a charge on the pledge ofshares of ESOL, being an offshore subsidiary of the corporatedebtor. The upfront payment to secured financial creditors onthe effective date would now be INR 41,909.29 crores and INR60.71 crores to Standard Chartered Bank. It was pointed out thatthis was based on the worth of those shares as security, beingonly INR 24.86 crores. The final resolution plan as approved on A

B

C

D

E

F

G

H

A

B

C

D

E

F

G

H

A23.10.2018 was as follows - in the place of INR 35,000 croresto be paid on the effective date as an upfront amount, INR39,500 crores and INR 2500 crores, aggregating INR 42,000crores was to be paid. The resolution applicant agreed that theCommittee of Creditors will decide the manner in which thefinancial package being offered by the resolution applicant toBfinancial creditors will be distributed to secured financialcreditors. The payment of INR 17.4 crore was to be made tounsecured financial creditors with a claim amount of more thanINR 10 lakhs, and INR 30.55 lakhs to such creditors with a claimamount of less than INR 10 lakhs, with the fresh capital infusionCfor improving operations and enhancing revival prospects of thecorporate debtor remaining at INR 8,000 crores. So far asoperational creditors were concerned, there was no changemade. At the 22[nd] meeting of the Committee of Creditors dated27.03.2019, it was felt that INR 1,000 crores extra be paid foroperational creditors over and above INR 1 crore each. Finally,Dthe allocation of INR 1,000 crore extra to operational creditorswas approved by a majority of 70.73% of the COC. [Para 85-88] [408-E; 409-B-D; 413-C-E; 417-D]

10.3 The submission of Standard Chartered Bank, that theoffer made by ArcelorMittal of payment of INR 42,000 croresEas upfront in order to pay 100% principal outstanding of securedfinancial creditors of the corporate debtor cannot be accepted.Given that Standard Chartered Bank was reclassified as asecured financial creditor of the corporate debtor only on10.09.2018 and that the said upfront payment of INR 42,000Fcrores would include the principal amount payable to StandardChartered Bank as well, it is seen how in the course ofnegotiation, the vast majority of financial creditors have ultimatelydecided that Standard Chartered Bank will only get an amountbased on its security interest, which was accepted by ArcelorMittal. It was submitted that the final resolution planGultimately offered a sum of INR 39,500 crores instead of INR42,000 crores, being a minimum upfront payment from which itwas possible to negotiate upwards but not downwards. Aconclusion cannot be arrived at that the acceptance of theresolution plan by the majority of the Committee of CreditorsHshould be set aside on this score, inter alia, for the reason that

the counsel for Standard Chartered Bank assured that he wasnot attacking the acceptance of the revised plan but onlydistribution of amounts payable under the said plan. This beingso, it cannot be said that “feasibility and viability” of a resolutionplan will not include distribution of the amount of debt under thesaid plan; and that the resolution plan must itself provide fordistribution inter se between secured financial creditors. It isenough that under the Code and the Regulations, the resolutionplan provides for distribution of amounts payable towards debtsbased upon a classification of various types of creditors. Thisboth the original plan as well as the negotiated plan ofArcelorMittal have already done, both plans containing theamount to be paid to workmen separately, operational creditorsof INR 1 crore and less separately, operational creditors of INR1 crore and over separately and financial creditors, subdividedinto secured and unsecured as sub-classes, separately. All thatwas left for distribution by ArcelorMittal was distribution interse between secured financial creditors which was then done bya majority of 92.24%, based upon the value of their respectivesecurity interests. Therefore, the allegation that the Committeeof Creditors relieved ArcelorMittal from the solemn offer madebefore the Supreme Court by reducing the offer amount of INR42,000 crores by INR 2,500 crores so that ArcelorMittal couldacquire the debts of OSPIL, is again a matter for negotiationbeing a business decision taken by the Committee of Creditorswith ArcelorMittal. In any case ultimately INR 35,000 crores wasupped to INR 42,000 crores, it being made clear in the finalresolution plan that upfront payment of INR 42,000 crores is acommitted amount, even if working capital adjustment turns outto be below INR 2,500 crores. [Para 89] [417-E-H; 418-A-E]

10.4 It cannot be said that the Adjudicatory Authority andconsequently the Appellate Authority would be vested with thediscretion to apply what was applied by the Committee ofCreditors in the Orissa Manganese case. [Para 91] [419-E]

10.5 The submission that Section 53 of the Code wouldbe applicable only during liquidation and not at the stage ofresolving insolvency is correct. Section 30(2)(b) of the Coderefers to Section 53 not in the context of priority of payment of ABC

DEF

GH

Acreditors, but only to provide for a minimum payment tooperational creditors. However, this again does not in anymanner limit the Committee of Creditors from classifyingcreditors as financial or operational and as secured orunsecured. Full freedom and discretion has been given, to theBCommittee of Creditors to so classify creditors and to paysecured creditors amounts which can be based upon the valueof their security, which they would otherwise be able to realiseoutside the process of the Code, thereby stymying the corporateresolution process itself. [Para 92] [419-F-G]

C10.6 The submission based upon serious conflict ofinterest between secured and unsecured financial creditors, asthe majority may get together to ride roughshod over theminority, flies in the face of the majority of financial creditorsbeing given complete discretion over feasibility and viability ofresolution plans, which includes the manner of distribution ofDdebts that is contained in them, subject to following theprovisions of the Code relating, inter alia, to dealing with theinterests of all stakeholders including operational creditors. TheCommittee of Creditors does not act in any fiduciary capacityto any group of creditors, as submitted by the counsel forEStandard Chartered Bank. On the contrary, it is to take abusiness decision based upon ground realities by a majority,which then binds all stakeholders, including dissentientcreditors. It is important to note that the original thresholdrequired by way of majority was 75%. It is during the workingof the Code that this was found to be unrealistic and thereforeFreduced to 66% (amendments made to Section 28(3) and 30(4)of the Code by the Insolvency and Bankruptcy Code (SecondAmendment) Act of 2018). [Para 93] [420-A-D]

10.7 The NCLAT judgment which substitutes its wisdomfor the commercial wisdom of the Committee of Creditors andGwhich also directs the admission of a number of claims whichwas done by the resolution applicant, without prejudice to itsright to appeal against the said judgment, is set aside. [Para 94][420-E]

10.8 So far as Civil Appeal No. 6409 of 2019 is concerned,Hthe cheques issued by the corporate debtor due to its payment obligation towards BP Limited were not issued with a view tosecure any payment obligation of the principal borrower i.e.EPGL, is a finding of fact which dislodges the claim of thisappellant to be regarded as a financial creditor. There is noinfirmity in the said finding. [Para 95] [420-F]

10.9 So far as Civil Appeal Diary No. 36838 is concerned,the NCLAT erred inasmuch as it added the claim of thisAppellant to the tune of INR 861.19 crore despite the fact thatthe claim had already been admitted by the resolutionprofessional thereby resulting in a double counting of the debtof this Appellant. This being the position, that part of theimpugned NCLAT judgment is set aside as well. [Para 96] [420-G-H; 421-A]

10.10 So far as Civil Appeal No. 6266 of 2019, there is noreason to dislodge the finding of the NCLAT that the claim wasfiled by the Appellant after the approval of the resolution plan.However, the NCLAT’s finding that the said claim is subject toarbitration and that it was open for the Appellant to pursue thematter in terms of Section 60(6) of the Code deserves to be setaside in terms of this judgment. [Para 97] [421-A]

10.11 As regards Civil Appeal No. 6269 of 2019, there isforce in the contention of the Appellant that there has been anerror in the impugned NCLAT judgment in as much as it notesthe claim amount, as admitted, as being a sum of INR 124.88crores, but later in the same judgment notes the said amountas INR 2.47 crores based on a chart submitted by the resolutionprofessional. This chart submitted by the resolution professionalspecifies the amount of INR 2.47 crore (added after the NCLTjudgment dated 08.03.2019), which is in addition to the amountof INR 124.88 crores already admitted by the resolutionprofessional. Therefore, the NCLAT erred in noting INR 2.47crore amount as the amount of the Appellant’s claim, and thatpart of the judgment is set aside. Thus, the claim of the appellantshall be the claim as admitted and registered by the resolutionprofessional. This apart, there is no merit in the submission ofthe Appellant with respect to the sum of INR 121.72 crores asthe same has been rightly rejected by the NCLAT in view ofthe fact that the said claim was filed after the completion of the A

BC

D

EF

G

H

ACIRP period. However, the NCLAT’s judgment inasmuch as itleft it open for the Appellant to pursue the matter in terms ofSection 60(6) of the Code is set aside in terms of this judgment.[Para 98] [421-C-F]

10.12 As regards Civil Appeal No. 7266 of 2019 and 7260Bof 2019, the resolution professional has rejected the claim of theAppellants on the ground of non-availability of duly stampedagreements in support of their claim and the failure to furnishproof of making payment of requisite stamp duty as per the StampAct despite repeated reminders having been sent by theCresolution professional. The application filed by the Appellantsbefore the NCLT came to be dismissed on the ground of non-prosecution. The subsequent restoration application filed by theappellants then came to be rejected by the NCLT on twogrounds: one, that the applications could not be entertained atsuch a belated stage; and two, that notwithstanding theDaforementioned reason, the claim had no merit in view of thefailure to produce duly stamped agreements. The impugnedNCLAT judgment, upheld the finding of the NCLT and theresolution professional. In view of these concurrent findings, theclaim of the Appellants therefore requires no interference.EFurther, the submission of the Appellants that they have nowpaid the requisite stamp duty, after the impugned NCLATjudgment, would not assist the case of the Appellants at thisbelated stage. [Para 99] [421-G-H; 422-A-C]

10.13 As regards Writ Petition (Civil) No. 1064 of 2019,Fthere is force in the submission of the writ petitioner that theNCLAT wrongly noted that the claim amount was notionallyadmitted by the resolution professional at INR 1 only. Theresolution professional has admitted the claim of the WritPetitioner to a tune of INR 17.09 crore and the same is recordedGin the list of creditors prepared by the resolution professional.In view of the same, this part of the NCLAT judgment is thuserroneous and the claim shall be the claim as admitted andregistered by the resolution professional. [Para 100] [422-D-E]

10.14 As regards Writ Petition (Civil) No. 1049 of 2019,Hthe Petitioner is admittedly the operational creditor of one Wind World India Ltd whose CIRP proceedings are pending beforethe NCLT, Ahmedabad. The Petitioner has inter alia sought forpermission to raise various issues arising out of the facts of itsown case in the matter pending before the NCLT. In view of thefact that this judgment has not opined on the merits of the caseof the Writ Petitioner pending before the NCLT, it is open tothe Writ Petitioner to raise all contentions as permissible underthe applicable law before the NCLT in the pending proceedings.[Para 101] [422-F-H]

10.15 So far as Dakshin Gujarat Vij Co. (Respondent No.11 in Civil Appeal Diary No. 24417 of 2019), State Tax Officer(Respondent No. 12 in Civil Appeal Diary No. 24417 of 2019),Gujarat Energy Transmission Corporation Ltd. (Respondent No.17 in Civil Appeal Diary No. 24417 of 2019) and Indian OilCorporation Ltd. (Respondent No. 18 in Civil Appeal Diary No.24417 of 2019) are concerned, the resolution professionaladmitted the claim of the abovementioned respondents notionallyat INR 1 on the ground that there were disputes pending beforevarious authorities in respect of the said amounts. However, theNCLT through its judgment dated 08.03.2019 directed theresolution professional to register the entire claim of the saidrespondents. The NCLAT upheld the order passed by the NCLTas aforesaid and admitted the claim of the respondents. Thus,this part of the impugned judgment is set aside on the groundthat the resolution professional was correct in only admitting theclaim at a notional value of INR 1 due to the pendency ofdisputes with regard to these claims. [Para 102] [423-A-D]

10.16 The CIRP of the corporate debtor will take place inaccordance with the resolution plan of ArcelorMittal dated23.10.2018, as amended and accepted by the Committee ofCreditors on 27.03.2019, as it has provided for amounts to bepaid to different classes of creditors by following Section 30(2)and Regulation 38 of the Code. [Para 103] [423-F]

State Bank of India v. Orissa Manganese and MineralsLtd. CA(IB)No. 391/KB/2018 – referred to.

Case Law Reference

[2018] 12 SCR 362

relied on

Para 27, 82

A

B

C

D

E

F

G

H

[2019] 16 S.C.R.

CIVIL APPELLATE JURISDICTION : Civil Appeal Nos. 8766-8767 of 2019.

From the Judgment and Order dated 04.07.2019 of the NationalCompany Law Appellate Tribunal, New Delhi in Company Appeal (AT)F(Insolvency) No. 257 of 2019 and Company Appeal (AT) (Insolvency)No. 265 of 2019.

With

Civil Appeal Nos. 5634-5635, 5636-5637, 5716-5719, 5996, 6266,G6269, 6409, 6433-6434, 8768, 7266, 7260, 8769 9f 2019, Writ Petition(Civil ) Nos. 1055, 1064, 1049, 1050, 1057, 1058, 1061, 1060, 1056, 1063,1066, 1087, 1110, 1113, 1121, 1246, 1296 of 2019.

K.K. Venugopal, Attorney General for India, Tushar Mehta, SG,Ms. Madhavi Divan, ASG, P.K. Jani, AAG, Rakesh Dwivedi, GopalSubramanium, Shyam Divan, Harish N. Salve, Neeraj Kishan Kaul,H

Salman Khurshid, Parag Tripathi, Nikhil Nayyar, Harin P. Raval, M.G.Ramachandran, C.U. Singh, Ranjit Kumar, Kapil Sibal, Arvind Datar,Ramji Srinivasan, Nakul Diwan, Sr. Advs., Ms. Chinmayee Chandra,Arvind Kr. Sharma, Aniruddha P. Mayee, A.R. Rajarajan, Sanjeev Kr.Choudhary, Sapan Gupta, Manu Nair, Ms. Misha, Siddhant Kant,Ms. Mrida Lakhmani, Ms. Jasveen Kaur, Ms. Moushmi Mehta,Ms. Moulshree Shukla, Ekalavya Dwivedi, S.S. Shroff, Ms. AnannyaGhosh, Hitesh Malik, Pawan Bhushan, Dushyant Manocha, Hitesh Saini,Ms. Ujjwala P., Ms. Anindita Mitra, Ms. Ruby Singh Ahuja, SudhirSharma, Vishal Gehrana, Anupam Prakash, Utkarsh Maria, AbhishekSwaroop, Ms. Misha Chandna, Deepak Joshi, Avishkar Singhvi, AmitBhandari, Naman Bagga (for M/s. Karanjawala & Co.), Dhruv Malik,Ashish Mukhi, Kamlendra Singh, Laltaksh Joshi, Ms. MadhurimaSarangi, Zafar Khurshid, Vikram Aditya Singh, Ms. Mitali Chauhan (forM/s. Juris Corp.), Ashu Kansal, Ms. Stuti Vats, Ms. Sneha Kohli,Ms. Niharika Ahluwalia, Alok Dhir, Ms. Varsha Banerjee, T.V.S.Raghavendra Sreyas, Nipun Saxena, Ms. Sukanya Singh, Mrs. ShallyBhasin, Shubham Kulshreshtha, Kartikey Kanojiya, Mrs. HemantikaWahi, Ms. Ranjitha Ramachandran, Ms. Jesal Wahi, Ms. Puja Singh,Anand Varma, Dhairya Madan, Shwetank Singh, Ms. Vanshika Singh,Arvind Kumar Gupta, Ms. Purti Marwaha Gupta, Ms. Twisha, Ms. V.S.Lakshmi, A. Venayagam Balan, Vikas Mehta, Vasanth Bharani, AdithNair, Arjun Asthana, Ms. Shivani Kachwaha, Ms. S. Ghosh, Ms. UjjainiChatterjee, Sidhartha Sharma, Ms. Anshula Vijay Kumar Grover, DhavalMehrotra, Sudhanshu Sikka (for M/s. K Ashar & Co.), Zainab Bharmal,Kristy Baptist, E. C. Agrawala, Sandeep Singhi, Gaurav Mathur,Ms. Anushree Prashit Kapadia, Abhishek Shah, Sudarsh Menon,Samarendra B., Ram Gupta, Ms. Neha Naik, P.S. Sudheer, RishiMaheshwari, Ms. Anne Mathew, Bharat Sood, Ms. Shruti Jose,Dhananjay Kumar, Raunak Dhillon, Ms. Ananya Dhar Choudhury, Ms.Ishmeet Kaur, Ms. Sylona Mohapatra (for M/s. Cyril AmarchandMangaldas), Soumya Dutta, Pradeep Misra, Manoj Kumar Sharma,Daleep Dhyani, Suraj Singh, Ms. Pallavi Pratap, Ms. Neema (for M/sPratap and Co.), Rajat Navet, Manish K. Bishnoi, Ms. Mehak Bakshi,Ajay Bhargava, Mrs. Vanita Bhargava, Mrs. Wamika Trehan,Ms. Vansha Sethi Suneja, Gaurav Juneja, Aditya Ganju, Ms. PriyankaMalhotra (for Khaitan & Co.), Ms. Garima Bajaj, Satendra K. Rai,Chandra Prakash, Akshay Girish Ringe, Ms. Megha Mukerjee,M/s. D.S.K. Legal, Vipin Kumar Jai, Advs. for the appearing parties.

A

B

C

D

E

F

G

H

AThe Judgment of the Court was delivered by

R. F. NARIMAN, J.

Delay Condoned in Civil Appeal Diary No. 31409 of 2019 andCivil Appeal Diary No. 36838 of 2019. I.A. No. 102638 of 2019 in CivilBAppeal Diary No. 24417 of 2019 for Permission to File Appeal allowed.Appeal Admitted.

1. This group of appeals and writ petitions raises importantquestions as to the role of resolution applicants, resolution professionals,the Committee of Creditors that are constituted under the InsolvencyCand Bankruptcy Code, 2016 (hereinafter referred to as “the Code”),and last, but by no means the least, the jurisdiction of the NationalCompany Law Tribunal (hereinafter referred to as “NCLT”/”Adjudicating Authority”) and the National Company Law AppellateTribunal (hereinafter referred to as “NCLAT”/”Appellate Tribunal”),Dqua resolution plans that have been approved by the Committee ofCreditors. The constitutional validity of Sections 4 and 6 of theInsolvency and Bankruptcy Code (Amendment) Act, 2019 (hereinafterreferred to as the “Amending Act of 2019”) have also been challenged.These appeals and writ petitions are an aftermath of this Court’sEjudgment dated 04.10.2018, reported as ArcelorMittal India PrivateLimited v. Satish Kumar Gupta (2019) 2 SCC 1.

2. On 02.08.2017, the NCLT, Ahmedabad admitted CompanyPetition (I.B.) No. 39 of 2017 filed by Standard Chartered Bank togetherwith a Petition filed by the State Bank of India under Section 7 of theFCode. One Satish Kumar Gupta was appointed as the interim resolutionprofessional, who was later confirmed as resolution professional. On06.10.2017, the resolution professional by way of an advertisement inthe Economic Times, invited expressions of interest from all interestedresolution applicants to present resolution plans for rehabilitating thecorporate debtor, namely, Essar Steel India Limited. On 24.12.2017, theGresolution professional issued a request for proposal (hereinafter referredto as “RFP”), inter alia, inviting resolution plans for the aforesaidcorporate debtor, which was later amended on 08.02.2018. Tworesolution plans were submitted on 12.02.2018, one by ArcelorMittalIndia Private Limited (hereinafter referred to as “ArcelorMittal”) andHanother by Numetal Limited (hereinafter referred to as “Numetal”) both of which were found to be ineligible under Section 29-A of the Code.On 02.04.2018, resolution plans were then submitted by ArcelorMittal,Numetal and one Vedanta Limited (hereinafter referred to as“Vedanta”). The resolution plan of ArcelorMittal specifically providedfor an upfront payment of INR 35,000 crores in order to resolve debtsamounting to INR 49,213 crores. It was stated that unsecured financialcreditors shall be paid an aggregate amount of 5% of their admittedclaims. Apart from the above, INR 8,000 crores of fresh capital infusionby way of capex and working capital was also to be infused. INR 3,339crores - being the aggregate admitted claims of operational creditors,other than workmen and employees, was to be paid to the extent ofINR 196 crores, but only to trade creditors and government creditors.Small trade creditors, defined as “having claims of less than one crore”were to be honoured in full, as was the claim of workmen andemployees of the corporate debtor, amounting to INR 18 crores.Importantly, the resolution applicant empowered the Committee ofCreditors to decide the manner in which the financial package beingoffered would be distributed among the secured financial creditors.Standard Chartered Bank, which was stated to be an unsecured creditor,was to be paid an aggregate amount of 5% of its admitted claims. On19.04.2018, the Adjudicating Authority directed the Committee ofCreditors of the corporate debtor, which by then had been set up bythe interim resolution professional, to consider the eligibility of theaforesaid resolution applicants.

3. On 10.09.2018, Standard Chartered Bank was classified as asecured financial creditor of the corporate debtor by the resolutionprofessional. On 04.10.2018, this Court declared both ArcelorMittal andNumetal ineligible by virtue of their resolution plans being hit by Section29-A of the Code. However, an order was passed under Article 142of the Constitution, stating that one more opportunity be granted to bothArcelorMittal and Numetal to pay off the NPAs of their relatedcorporate debtors within two weeks of the Supreme Court judgment,failing which the corporate debtor would go into liquidation. On18.10.2018, ArcelorMittal informed the resolution professional and theCommittee of Creditors that it had made payments as per the SupremeCourt’s judgment dated 04.10.2018. However, Numetal did not makeany such payment. As a result, on 19.10.2018, ArcelorMittal resubmittedits resolution plan of 02.04.2018, which was then evaluated by theCommittee of Creditors on the same date - ArcelorMittal being declared AB

C

DE

F

G

H

Aas the highest evaluated resolution applicant vis-a-vis Vedanta. On25.10.2018, the final negotiated resolution plan of ArcelorMittal wasapproved by the Committee of Creditors by a 92.24% majority. Afterseveral proceedings before the NCLT and the NCLAT, the NCLT, byits judgment dated 08.03.2019 disposed of the application to allow theresolution plan filed by ArcelorMittal as follows:B

“…we are of the view that the dues of the operational creditorsmust get at least similar treatment as compared to the dues ofthe financial creditors on the principle of equity and fair play aswell as the Wednesbury Principle of Unreasonableness and theDoctrine of Proportionality, so as to avoid disparity in makingCpayments to the operational creditors having debt value of Rs.1crore and above (a token of Re.1) and the allegation ofdiscriminatory practice could be ruled out…Hence, in our view,if a reasonable formula for apportionment is worked out so that85% of the amount offered by the resolution applicant isDdistributed among the financial creditors and the remaining 15%of the amount is distributed amongst the rest of the operationalcreditors, then the entire claim of the operational creditors, whichcomes to around Rs.4700 crore can be substantially paid off orat least the operational creditors can get 50% of their admittedand undisputed claim in the light of the judgment of the Hon’bleESupreme Court in Chitra Sharma v. Union of India (supra).Such object can be achieved, if the financial creditor and themembers of the CoC are willing to sacrifice the interestcomponent on their principal loan, because it is established positionin the record that the principal loan liability of the corporate Fdebtor company comes to around Rs.35,000 crore in the year2017 when these IB Petitions were admitted, which includes theinterest component also and by giving such hair-cut to the interestcomponent to the extent possible by providing provision for 15%amount for the other operational creditors and stakeholders, weare of the view that debts of the entire operational creditors canGbe satisfied in a reasonable and fair manner and then such I.A.spreferred by the operational creditors would also becomeinfructuous and this Adjudicating Authority would not be requiredto deal with the merits of each and every I.A. Thus, this wouldbe beneficial to avoid multiplicity of legal proceedings and toHremove any impediment for effective implementation of the resolution plan and to achieve the main theme and object of thepresent I & B Code.”

A

4. By an interim order dated 20.03.2019 in the appeals that werefiled before NCLAT, the NCLAT directed the Committee of Creditorsto take a decision on certain suggestions that were made. Pursuant tothis, on 27.03.2019 the Committee of Creditors decided - voting havingconcluded on 30.03.2019 - to appeal against the NCLAT’s order, and,by a majority of 70.73% approved making an ex gratia payment ofINR 1,000 crores to operational creditors above INR 1 crore. Appealsfiled against the interlocutory orders of the NCLAT were then heardby this Court, which by its order dated 12.04.2019, inter alia, directednon-implementation of the judgment dated 08.03.2019 of the NCLT andexpeditious disposal of the appeal before the NCLAT.

B

C

5. By its final judgment dated 04.07.2019, the NCLAT held that:

(i) In a resolution plan there can be no difference betweena financial creditor and an operational creditor in theDmatter of payment of dues, and that therefore, financialcreditors and operational creditors deserve equaltreatment under a resolution plan. Accordingly, theNCLAT has re-distributed the proceeds payable underthe approved resolution plan as per the method ofcalculation adopted by it so that all financial creditorsEand operational creditors be paid 60.7% of their admittedclaims;

(ii) Securities and security interest is irrelevant at the stageof resolution for the purposes of allocation of payments,thereby directing that each financial creditor (whethersecured or unsecured) with a claim equal to or morethan INR 10 lakhs be paid 60.7% of its admitted claimirrespective of their security interest; F

(iii) Operational creditors by definition have separate classeswithin themselves and can be classified into sub-classesfor the purpose of distribution (while rejecting anyclassification amongst the financial creditors) on thebasis of the admitted amounts thereby directing thatoperational creditors with a claim of equal to or morethan INR 1 crore be paid 60.268% of their admittedclaims.

G

H

A(iv) Certain additional claims of operational creditors (someof which were highly belated and/or without sufficientproof) were admitted, such that the admitted operationaldebt of approximately INR 5,058 crores at the time ofthe approval of the approved resolution plan became anoperational debt of approximately INR 19,719.20 crores.

B

(v) The profits generated by the corporate debtor during theCorporate Insolvency Resolution Process (hereinafterreferred to as the “CIRP”) would be distributed equallyamongst the financial creditors and operational creditorsof the corporate debtor.

C

(vi) A sub-committee or core committee cannot beconstituted under the Code, being a foreigner thereto.The Committee of Creditors alone are to take alldecisions by themselves.

(vii) The Committee of Creditors has not been empoweredto decide the manner in which the distribution is to bemade between one or other creditors, as there wouldbe a conflict of interest between financial and operationalcreditors, financial creditors favouring themselves to thedetriment of operational creditors.

D

E

(viii) Section 53 of the Code cannot be applied during thecorporate resolution process but will apply only at thestage of liquidation.

(ix) Claims that have been decided by the resolutionprofessional and affirmed by the Adjudicating AuthorityFor the Appellate Tribunal are final and binding on allcreditors. However, claims which have not been decidedby the Adjudicating Authority or the Appellate Tribunalon merits may be decided by an appropriate forum interms of Section 60(6) of the Code.

G

(x) Financial Creditors in whose favour guarantees wereexecuted, as their total claim stands satisfied to theextent of the guarantee, cannot re-agitate such claimsas against the principal borrower.

6. We have heard detailed arguments made by Shri GopalHSubramanium and Shri Rakesh Dwivedi, learned senior counsel, on

behalf of the Committee of Creditors of Essar Steel India Limited. Theyhave argued that the provisions of the Code provide for a broadclassification of creditors as financial creditors and operational creditorson the basis of the nature of the transaction between creditors and acorporate debtor. They have further argued that the Code does notmandate identical treatment of differently situated creditors either interse within financial creditors, who may be secured or unsecured, and/or financial creditors vis-a-vis operational creditors. The Code onlyposits equitable treatment of different classes of creditors recognisingthat different classes deserve differential treatment. According to them,financial creditors as a class have a superior status as againstoperational creditors, the same being the case with secured creditorsvis-a-vis unsecured creditors. For this purpose, they relied upon certainprovisions of the Code. They further argued that the general law ofthe land as contained in Section 48 of the Transfer of the Property Act,1882 and Section 77 of the Companies Act, 2013 would not have beentaken away sub-silentio by the Code and have relied upon a largenumber of authorities for this purpose. They also referred to and reliedupon the UNCITRAL Legislative Guide on Insolvency Law (hereinafterreferred to as the “UNCITRAL Legislative Guide”), which was referredto by this Court in Swiss Ribbons Private Limited v. Union of India(2019) 4 SCC 17, and upon a report by the International Monetary Fundtitled “Orderly and Effective Insolvency Procedures – Key Issues”.They also referred to and relied upon judgments under Article 14 ofthe Constitution of India which highlight the fact that classification ispermissible so as to differentiate persons who are unequal, who cannotthen be treated equally. They also argued, relying strongly upon the IMFpaper on “Development of Standards for Security Interest” by PascaleDe Boeck and Thomas Laryea, in addition to several expert reports,that classification of creditors based on the nature of the debt and/orsecurity interest is a sine qua non for any Insolvency Code. Theyargued that if secured financial creditors are to be treated at par withunsecured creditors, such secured creditors would rather vote forliquidation rather than Corporate Resolution, contrary to the mainobjective sought to be achieved by the Code. They then argued thatthe health of the financial sector is critical for the overall health andgrowth of the economy, which would otherwise be subverted, if theimpugned judgment were to be given effect. They relied strongly uponparagraphs 27 and 28 of Swiss Ribbons (supra), in particular, which AB

C

D

E

F

G

H

AB

C

D

E

F

G

H

Adifferentiated between secured and unsecured creditors, most financialcreditors being secured creditors and most operational creditors beingunsecured. They also argued that the law laid down in K. Sashidharv. Indian Overseas Bank 2019 SCCOnline SC 257, had made it clearthat there is a judicial hands-off when it comes to the commercialwisdom of the Committee of Creditors, which has been directly infractedBby the impugned judgment, which has held that the Committee ofCreditors has nothing to do with the distribution of amounts which areinfused by the resolution applicant for payment of the corporate debtor’serstwhile debts. They relied heavily upon the Bankruptcy Law ReformsCommittee Report, 2015 (hereinafter referred to as the “BLRCCReport”) to buttress this submission, as well as the UNCITRALLegislative Guide. They then submitted that a resolution plan is a consent-based plan proposed by the resolution applicant for a corporate debtor.The counterparty to such a plan is the Committee of Creditors, whichis required to give a minimum consent of 66% voting share, whichDconsent then becomes the basis for the Adjudicating Authority toapprove a resolution plan for the corporate debtor. Once approved bythe Adjudicating Authority, such plan becomes binding on all stakeholdersas is mentioned by Section 31 of the Code. Therefore, any modification,as has been done by the NCLAT, of such plan is illegal. They thenargued that the Committee of Creditors has both the power and theEjurisdiction to deal with all commercial aspects of a resolution plan,including distribution of proceeds under such plan, and also referred toand relied upon the recent amendments made to Section 30 of the Code.They stated that the ArcelorMittal plan, as amended, looked after allstakeholders including operational creditors, and stated that a staggeringFamount of INR 55,000 crores qua operational creditors was paid duringthe 600 odd days of CIRP being carried out, operational creditors whoseclaims were above INR 1 crore, now being paid approximately 20%of their admitted dues. They also highlighted the fact that the securedcreditors have lost about INR 17,000 crores of interest in the last threeyears due to the account of the corporate debtor having been classifiedGas NPA. They then argued that the setting up of a sub-committee bythe Committee of Creditors is permissible under the Code, and referredto certain judgments to buttress this proposition. They further arguedthat no decision-making power was delegated to the sub-committee,nor did the sub-committee at any time decide or even recommend onHdistribution of amounts. They then argued that the NCLAT admitted

various rejected/disputed/estimated claims worth INR 13,767 crores,which was more than the amount originally claimed by operationalcreditors. Various instances of non-application of mind were pointedout by which claims worth INR 11,278, which were not yet crystallized,were admitted by the NCLAT for payment, and various examples ofdouble payment were also given. It was also argued that the NCLATerroneously permitted several disputed claims to be raised outside theprovisions of the Code after approval of the resolution plan, by referringto and relying upon Section 60(6) of the Code, which merely savedlimitation for barred claims. They then argued that extinguishment ofthe right of creditors against individual guarantees extended by thepromoters/promoter group of the corporate debtor was wholly illegalbeing contrary to several judgments of this Court and contrary to theterms of the guarantees themselves. They further argued that the profitsthat were made during the CIRP can obviously not be used for paymentof the debts of the corporate debtor, as has been ordered by theNCLAT. Ultimately, according to the learned counsel, the impugnedNCLAT judgment deserves to be set aside because it has curtailed theauthority of the Committee of Creditors; expanded the jurisdiction ofthe Adjudicating Authority as well as the NCLAT beyond the boundscontained in the Code; and has transgressed the most basic tenet ofthe Committee of Creditors’ commercial wisdom being reflected by anover 66% majority vote, which has been nullified by the NCLAT bycompletely modifying and substituting the resolution plan approved bythe Committee of Creditors.

7. Shri Shyam Divan, learned senior advocate appearing on behalfof the State Bank of India, has supported the submission made onbehalf of the Committee of Creditors of Essar Steel India Limited.According to the learned senior advocate, whereas his client and othersecured creditors are secured to the extent of 99.66% of theiroutstanding dues, the only security of Standard Chartered Bank is apledge of the shares held by the corporate debtor in an offshoreMauritian subsidiary, namely Essar Steel Offshore Limited (hereinafterreferred to as “ESOL”), and the fair value of ESOL pledged shareshas been determined at only INR 24.86 crores as against the totaloutstanding admitted dues of INR 3487.10 crores (being 0.7% of thetotal admitted debt of Standard Chartered Bank). Thus, according tohim, Standard Chartered Bank is an unsecured creditor to the extentof INR 3462.14 crores, and as against a sum of INR 60.71 crores which AB

C

D

E

F

G

H

Awas payable under the resolution plan as approved by the Committeeof Creditors, the NCLAT has now upped this figure to approximatelyINR 2160 crores completely beyond its limited jurisdiction under theCode. Apart from the above, he also argued that Standard CharteredBank is precluded from raising any challenge to the constitution of asub-committee as it had participated in several meetings in which itBraised no objection to the sub-committee, and had in fact requested tobe a part of the sub-committee. He then argued that negotiations thatwere undertaken by the sub-committee was in accordance with themandate of the Committee of Creditors, which alone took all decisions;the sub-committee merely being an executive arm of the CommitteeCof Creditors.

8. Shri Kapil Sibal, appearing on behalf of the Standard CharteredBank, defended the NCLAT judgment on all aspects. According to him,the offer made by ArcelorMittal was to make a payment of INR 42,000crores as an upfront amount in order to pay 100% of the principalDoutstanding of the secured financial creditors of the corporate debtor.That this sum came to be offered only as a result of an offer made byNumetal on 07.09.2018 to pay INR 37,000 crores as upfront paymentto secured financial creditors. According to learned counsel, the sumof INR 42,000 crores cannot be worked out unless the principal amountowed to Standard Chartered Bank is also included in the said figure.EThe figure of INR 42,000 crores was stated by the counsel of theCommittee of Creditors before this Hon’ble Court, in the final hearingwhich took place before the judgment in ArcelorMittal India (supra),and that this sum could be the minimum value of payment with a scopefor further negotiations. However, what ultimately turned out is aFpayment of a lesser value, namely INR 39,500 crores as upfront, INR2,500 crores being added as an eyewash towards Guaranteed WorkingCapital Adjustment. The reason this was an eyewash is because OdishaSlurry Pipeline Infrastructure Limited (hereinafter referred to as“OSPIL”), a wholly owned subsidiary of the corporate debtor, ownedGa slurry pipeline. ArcelorMittal, in order to ensure unhindered usage ofthe said slurry pipeline, agreed that it would acquire the debts of OSPIL.In order to achieve such acquisition of the debts of OSPIL, the CoreCommittee of Creditors relieved ArcelorMittal from the solemn offermade to the Supreme Court of India to pay upfront a sum of INR 42,000crores, and reduced from this said amount, a sum of INR 2,500 crores.HThus, the Core Committee’s decision, as ratified by the Committee of

Creditors, was to accept a sum lesser than that guaranteed as upfrontpayment by ArcelorMittal. Shri Sibal then trained his guns against thevery formation of a Core Committee/Sub-Committee, stating that it isagainst the provisions of the Code, and that as originally conceived, itwas only to facilitate representation before the Adjudicating Authority,which was over, in any case, by 31.05.2018. The Core Committeehowever went on conducting secret negotiations with ArcelorMittal bywhich it buried Standard Chartered Bank’s debt almost completely. Thiswas done by reducing Standard Chartered Bank’s entitlement of INR2585 crores (INR 2646 crores minus INR 61 crores), if it were to haveoutstanding payments made on the basis of value of debt instead ofvalue of security. In any case, it was further argued that the resolutionplan of ArcelorMittal was itself flawed in that it would be contrary toRegulation 38(1A) of the Insolvency and Bankruptcy Board of India(Insolvency Resolution Process for Corporate Persons) Regulations,2016 (hereinafter referred to as the “2016 Regulations”), as it did notdeal with the interests of all stakeholders. It would also be contrary tothe RFP that was issued on 24.12.2017, clause 4.6.1(d) of which statedthat the resolution plan should have contained a statement as to how itwould deal with the interest of all stakeholders including, but not limitedto, break up of amounts to be paid to secured financial creditors,unsecured financial creditors and operational creditors, all of which wasleft, thanks to secret negotiations with ArcelorMittal by the resolutionplan to the Committee of Creditors. Learned counsel then argued thatunder the provisions of the Code, the role of the Committee of Creditorsis limited to considering the feasibility and viability of the resolution plan,which does not include the manner of distribution of the amount payableby the resolution applicant to the erstwhile creditors of the corporatedebtor. In any event, the decision of the Committee of Creditors onthe manner of distribution in the facts of this case is illegal and arbitrary,as once a creditor is classified as a financial creditor, such creditor isentitled to equal treatment with all other financial creditors, irrespectiveof whether it is secured or unsecured. For this purpose, the learnedsenior advocate relied upon the UNCITRAL Legislative Guide as wellas the BLRC Report, 2015. According to the learned senior advocate,Parliament has advisedly chosen not to create different classes offinancial or operational creditors when it comes to the process ofresolution of debts; and importance is given to the value of debt, asopposed to, the value of security which is given importance only when AB

C

DE

F

G

H

AB

C

DE

F

G

H

Athe liquidation process is to take place. He argued that Section 53 ofthe Code would apply only during liquidation and not at the stage ofresolving insolvency as is clear from the fact that “secured creditor”as defined by Section 3(30) of the Code is used only in Section 53 ofthe Code which is contained in Chapter III entitled “Liquidation Process”and not at all in Chapter II of the Code which is entitled “CorporateBInsolvency Resolution Process”. In Chapter II, only financial andoperational creditors, as defined, are spoken about. In point of fact, inthe 17[th] meeting of the Committee of Creditors held on 09.08.2018, theCommittee of Creditors had earlier decided that the upfront paymentmade shall be divided amongst financial creditors on the basis of theirCvoting shares, which in turn is fixed on the basis of the debt that isowed to each one of them. He further argued that the Committee ofCreditors could not possibly decide the manner of distribution as it wouldgive rise to a serious conflict of interest, as the majority may gettogether to ride roughshod over the minority. He further argued thatDno categorisation can be made based on the security interest of financialcreditors, which security interest may itself vary from first chargeholders to second charge holders and then to subservient and residualcharge holders. The fact that Standard Chartered Bank has beenrecognised, albeit only on 10.09.2018, as a secured financial creditorby the resolution applicant, is not challenged by any of the other financialEcreditors. Further, the valuation of pledged shares at INR 24.86 croresis itself a flawed evaluation, the actual value of the shares being inexcess of US $600 million.

9. Shri Sibal then took us to the Amending Act of 2019 andSection 6 of the Amending Act of 2019 in particular, which amendedFSection 30 of the Code, shortly after the judgment of NCLAT in thepresent case. This amendment was made in the Code with effect from16.08.2019. Shri Sibal’s first argument is that the aforesaid amendmentwould not apply to the facts of the present case, in as much as theamendment made is prospective in nature. Further, even underGExplanation 2 that has been added by the amendment, the facts of thepresent case do not fall within sub-clauses (i) to (iii) of the aforesaidExplanation. A reading of the amended Section 30(2)(b) together withthe Explanations contained therein, and the amendment of Section 30(4)would leave nobody in any manner of doubt that the purpose of theamendment was to get over the NCLAT judgment in order that theHhuge amount of around INR 2,100 crores, that is payable to a private foreign bank namely Standard Chartered Bank, gets reduced to aroundINR 61 crores, so that nationalised banks and other entities in whichthe Government has an interest may get a larger share of the pie tothe detriment of Standard Chartered Bank. The legislature has,therefore, overstepped the separation of powers boundaries to step inand legislatively adjudicate the facts of a particular case. Even otherwise,according to learned counsel, the provision is an arbitrary exercise ofpower which brings in Section 53, which is applicable only when thecorporate debtor gets liquidated, into the Corporate Resolution Process,contrary to the original scheme of the Code. Also, Explanation 1 directlyinterferes with the judicial function and cannot state that a distributionshall be fair and equitable, which can only be decided by the AdjudicatingAuthority and not by Parliament. Also, the amendment made to Section30(4) cannot possibly include value of security interest of a securedcreditor within the expression “feasibility and viability” which has beendone only in order that it be applied to the present case.

10. Shri Arvind Datar supplemented the arguments of Shri Sibaland also appeared on behalf of the Standard Chartered Bank. He arguedthat the loan by Standard Chartered Bank to the wholly owned subsidiaryof the corporate debtor is also a loan towards the project asset of thecorporate debtor and that the State Bank of India was fully aware ofsuch lending that was availed of by the corporate debtor. The whollyowned subsidiary is a Special Purpose Vehicle in order to ensureavailability of coal for the corporate debtor to cater to enhancedproduction capacity.

11. He elaborated on the meaning of the expression“modifications” contained in Regulation 39(3) of the 2016 Regulations,arguing that the power to make modifications does not include thepower to discriminate among creditors who are equally situated. Also,the Committee of Creditors cannot make rankings among financialcreditors or otherwise create a class within a class. He reiterated thatthe status of Standard Chartered Bank as a secured financial creditorhas not been disputed by any member of the Committee of Creditors.

12. Shri Ranjit Kumar, learned senior advocate appearing onbehalf of Ideal Movers Limited, an operational creditor of the corporatedebtor, stated that the admitted claim by the resolution professional wasINR 178,50,51,792, and the original resolution plan contained nothingby way of repayment to his client. It is only after the NCLT judgment A

B

C

D

E

F

G

H

Awhen INR 1,000 crores extra was paid by ArcelorMittal for operationalcreditors generally, that his client would now receive 20.5% of theadmitted claim. Of course under the NCLAT judgment, he would standto gain much more. He argued from a reading of the preamble of theCode and some of its provisions that a key objective of the Code is toensure that the corporate debtor goes on doing its business as a goingBconcern during the CIRP as a result of which a large number ofoperational creditors have to be paid their dues – such as workmen,electricity dues, etc. It is for this reason that the CIRP has to ensurethe balancing of interest of all stake holders which can only be achievedby a feasible and viable resolution plan which is capable of effectiveCimplementation. He, therefore, argued that the process of revival andthe process of liquidation are distinct and separate and have been sotreated by the Code. This being so, priorities of payment which applyin liquidation obviously cannot apply when the corporate debtor is beingrun as a going concern as otherwise secured creditors alone will bepaid and not operational creditors who are necessary for the runningDof the business. This stems from the fact that the insolvency resolutionprocess is to maximise the value of assets of corporate debtors whereasthe liquidation process is to recover outstanding dues by selling the assetsof the corporate debtor. He relied strongly on certain observations inSwiss Ribbons (supra) to buttress the aforesaid proposition. He alsoEargued that the UNCITRAL Legislative Guide, being a guide tolegislation, ought not to be looked at once the Code has been enacted.He then argued, that it is obvious that the Amending Act of 2019 hasbeen made in a great hurry in order that the NCLAT judgment beneutralised by law. This is clear from the fact that the NCLAT judgmentis dated 04.07.2019 and the Amending Act of 2019 was passed onlyFone month later i.e. on 06.08.2019. No Standing Committee wasconsulted, as was the case of all previous amendments made to theCode, resulting in completely arbitrary provisions being inserted. Hetrained his guns against Section 4 of the Amending Act of 2019, arguingthat timelines cannot be imposed or stipulated for the adjudication ofGdisputes by any court, least of all the Supreme Court of India. The periodof time taken in court proceedings cannot possibly be included within atimeframe as it would then nullify the role of the Adjudicating Authorityand the Appellate Tribunal, and would defeat the primary object andpurpose of the Code, which is resolution rather than liquidation.

H

H

13. Shri Harin P. Raval, learned senior advocate appearing onbehalf of Kamaljit Singh Ahluwalia in Writ Petition (Civil) No.1058 of2019 also assailed the Amending Act of 2019. Apart from the argumentsmade by Shri Sibal and Shri Ranjit Kumar, he also argued that theamendments made in Section 30 would be contrary to the rationale anddesign of the BLRC Report, 2015. He also added that the AmendingAct of 2019, insofar as it applied retrospectively, would beconstitutionally infirm as it cannot be said that the amendments madethereto are in any manner clarificatory but are new substantiveamendments.

14. Shri A.K. Gupta, learned advocate appearing for L&TInfrastructure Finance Co. Limited in Civil Appeal No.6409 of 2019,assailed the classification of his client as an operational creditor andstated that, on facts, the appellant had entered into a facility agreement,sanctioning a term loan of INR 75 crores to Essar Power GujaratLimited, a subsidiary of the corporate debtor. The borrower then enteredinto a Promoter Obligation Agreement by which one Essar PowerLimited undertook an obligation to arrange for cheques from thecorporate debtor. INR 62 crores of such post-dated cheques were issuedin favour of this appellant, as a result of which this appellant is alsoentitled to be classified as a financial creditor and not an operationalcreditor. He thus assailed the finding of the resolution professional, theNCLT and the NCLAT on this aspect of his case.

15. Shri Mishra, learned advocate, appeared on behalf of DakshinGujarat Vij Company, in which he submitted that the NCLAT had rightlydirected that the claim of his client should be considered with all othercreditors, and prayed in the alternative that directions be issued thathis client be entitled to recover the amount claimed, subject to thedecision of the court, from the corporate debtor as a going concern.Similar were the submissions made by Smt. Ramachandran on behalfof the Gujarat Energy Transmissions Corporation Limited. ShriManinder Singh, learned senior counsel, appeared on behalf of the Stateof Gujarat and supported paragraph 196 of the NCLAT judgment bywhich his client would be paid 60.26% of Sales Tax dues. Shri MukulRohatgi, learned senior advocate appearing on behalf of Mr. PrashantRuia supported the findings of the NCLAT, insofar as the NCLAT heldthat the personal guarantees given by his client had become ineffective AB

C

D

E

F

G

H

Ain view of the payment of the debt by way of resolution to the originallenders. Further, Shri Rohatgi also argued that the right of subrogationand the right to be indemnified conferred on a guarantor under the IndianContract Act would continue to exist in the absence of a positive waiver of such right by the said guarantor.

B16. Shri Harish Salve, learned senior advocate appearing onbehalf of ArcelorMittal, referred to the appeal filed by the StandardChartered Bank, being Civil Appeal No. 6433 of 2019, and stated thatthe remedy sought therein was restricted to quashing the impugnedjudgment to the extent of paragraph 221 thereof which had held thatCfinancial creditors in whose favour guarantees were executed, couldnot re-agitate their claims against the principal borrower, as their totalclaim stands satisfied to the extent of the guarantee, and that thereforeall the arguments made by Shri Sibal on behalf of Standard CharteredBank, being outside the scope of the appeal, ought not to be consideredat all. He further argued that since most of the arguments of Shri SibalDwould go to the validity of the resolution plan, which Shri Sibal himselfhas stated that he is not assailing, should therefore be rejected on thisground alone. He also argued that it was wholly incorrect to say thatonly INR 39,500 crores would be an upfront payment. He read to uscertain documents which would show that the guaranteed upfrontEpayment INR 42,000 crores which his client had committed very muchcontinued and that INR 2,500 crores which formed part of this figurewas allowed by the Committee of Creditors while negotiating with hisclient for very good reason.

17. Shri Neeraj Kishan Kaul, learned senior counsel alsoFappearing on behalf of ArcelorMittal, stressed the fact that theimportance of the insolvency resolution process is that not only is thecorporate debtor to be put back on its feet, but that the resolutionapplicant whose plan is accepted must be able to start on a fresh slate.This being the case, obviously Shri Rohatgi’s argument, that the personalguarantees of the erstwhile promoters do not stand extinguished andGthat, at the very least, the right of subrogation cannot be taken away,would boomerang upon the successful resolution applicant if such rightof subrogation were to be allowed to continue. Shri Salman Khurshidand Shri P. Tripathi, learned senior advocates appearing on behalf ofDeutsche Bank, stressed that it was important to recognise separateHclasses of creditors and reiterated the arguments made on behalf of a number of their forbears as to how it is important to make a sub-classification among financial creditors, as also among operationalcreditors, so that there may be real equality, that is, equality amongequals. Shri Vikas Mehta, learned advocate appearing on behalf ofGAIL, adverted to paragraph 84 of the impugned NCLAT judgmentand argued that the facts qua his client were wrongly stated inasmuchas the admitted claim figures are wrongly stated.

18. Mrs. Madhavi Divan, learned Additional Solicitor General ofIndia, replied to the arguments of Standard Chartered Bank and theoperational creditors as to the constitutional invalidity of Sections 4 and6 of the Amending Act, 2019. She argued that the amendments furtherthe objects sought to be achieved by the Code, which is maximisationof value of the assets of the corporate debtor in a time-bound frame.She pithily stated that the value of assets and the passage of time withinwhich insolvency resolution takes place are in inverse proportion as thepassage of time erodes the value of these assets. She pointed out theprevious experiments that had failed and adverted to certain judgmentsto show that the failure of previous acts such as The Sick IndustrialCompanies (Special Provisions) Act, 1985 (hereinafter referred to as“SICA”) and the Recovery of Debts Due to Banks and FinancialInstitutions Act, 1993 (hereinafter referred to as “Recovery of DebtsAct”) were due to enormous delays in disposal of cases. It is thisloophole that was sought to be plugged in accordance with the originalconception for the framework of the Insolvency Code that is to be foundin the BLRC Report of 2015. She also referred to Regulation 39-C ofthe 2016 Regulations and 32(e) and (f) of the Insolvency and BankruptcyBoard of India (Liquidation Process) Regulations, 2016 (hereinafterreferred to as “Liquidation Process Regulations”) together withRegulation 32-A(4) of Liquidation Process Regulations, to state that alonger period than was originally given by Section 12 of the Code isnow given so that, taking into account court proceedings, there mustnow be an outer limit within which either resolution takes place or thecompany goes into liquidation. The Regulations pointed out also showthat even if the corporate debtor goes into liquidation, 90 days is givento sell the undertaking of the corporate debtor as a going concern sothat 90 days over and above 330 days are also available to dispose ofthe corporate debtor as a going concern. So far as the challenge toSection 6 of the Amending Act of 2019 is concerned, she argued that AB

C

D

E

F

G

H

Athere is a symbiotic relationship between a resolution applicant and theCommittee of Creditors, who alone are to take a commercial decisionby the requisite majority whether or not to put the corporate debtor backon its feet. The reason for Explanation 1 to Section 30(2)(b) is that,what is fair and equitable must be determined within the framework ofthe Code, which is the commercial wisdom of the Committee ofBCreditors, subject to certain minimum guidelines to be observed. Thus,operational creditors who were originally to be paid only a minimumcalculated on the basis of what they would be paid in the event ofliquidation of a corporate debtor, are now to be paid the higher of twoamounts, thereby raising the threshold of what is to be paid by aCresolution applicant by way of a minimum to operational creditors, beingenhanced under the amended provision. Further, even dissentientfinancial creditors are now to be paid a minimum guaranteed amountfor the first time, as 66% of the financial creditors may give a certain

class of financial creditors ‘nil’ recovery, in which case this provisionDnow comes to their rescue stating that they shall not be given anythingless than the amount to be paid to such creditors in accordance withSection 53(1) of the Code. She also argued that it is important to realisethat the mention made of Section 53 in Section 6 of the Amending Actof 2019 is not in order that the priorities as to liquidation be apportionedamong creditors, but only in order that a minimum amount be calculatedEso as to see that operational creditors and dissentient financial creditorsget something more than what they would have got pre-amendment.So far as the Explanation 2 of the substituted Section 30(2)(b) isconcerned, she relied upon this Court’s judgment in ArcelorMittal India(supra) and Swiss Ribbons (supra), for the proposition that there isFno vested right in a resolution applicant to have its plan accepted. Thisbeing the case, and an appeal being a continuation of the proceedings,there is nothing wrong with applying the amended law in the three casesthat have been mentioned by Explanation 2. So far as the addition toSection 30(4) by the Amending Act of 2019 is concerned, the idea wasto get over the judgment of the Appellate Tribunal in this very caseGstating that sub-classification among different classes of creditors maybe done by the Committee of Creditors also on the basis of the valueof the security interest of a secured creditor. She also read in copiousdetail, the Rajya Sabha Debate held on 29.07.2019 in which the Hon’bleMinister piloted this amendment. According to her, the Federation ofHIndian Chambers of Commerce and Industry (hereinafter referred to as “FICCI”) gave a representation dated 17.07.2019 to the Secretary,Ministry of Corporate Affairs pointing out the flawed judgment of theNCLAT in this very case and asking the Government to swiftly amendthe Code so as to reinstate the law as it originally stood, to which theGovernment and Parliament responded by enacting the Amending Actof 2019.

19. Shri Tushar Mehta, learned Solicitor General of India, hassupplemented the submissions of the learned Additional Solicitor Generalby written arguments. He has argued that it is well settled that thelegislature can always take away the basis of a judicial decision withoutdirectly interfering with the judgment of the Court, and has cited severaldecisions to buttress this point. He also argued that Shri Sibal’s assaulton the constitutional validity of Sections 4 and 6 of the Amending Actof 2019 on the ground that the Amendment was tailor-made to do awaywith the judgment in this very matter, so that his client may walk awaywithout anything, is answered by the well settled principle that an Actof the legislature cannot be attacked on the ground of improper or badmotive, and cited certain judgments of this Court in support of the same.

Role of the resolution professional

20. The role of the resolution professional in the revival of thecorporate debtor is stated in detail in several Sections of the Code readwith the 2016 Regulations.

21. The ball starts rolling with the Adjudicating Authority, afteradmitting an application under either Sections 7, 9 or 10, ordering thata public announcement of the initiation of the CIRP together with callingfor the submission of claims under Section 15 shall be made – seeSection 13(1)(b) of the Code. For this purpose, the AdjudicatingAuthority appoints an interim resolution professional in the manner laiddown in Section 16 – see Section 13(1)(c) of the Code. In the publicannouncement of the CIRP, under Section 15(1), information as to thelast date for submission of claims, as may be specified, is to be given;details of the interim resolution professional, who shall be vested withthe management of the corporate debtor and be responsible forreceiving claims, shall also be given, and the date on which the CIRPshall close is also to be given – see Section 15(1)(c),(d) and (f) of theCode. Under Section 17 of the Code, the management of the affairsof the corporate debtor shall vest in the interim resolution professional, AB

C

D

E

F

GH

Athe Board of Directors of the corporate debtor standing suspended bylaw. Among the important duties of the interim resolution professionalis the receiving and collating of all claims submitted by creditors andthe constitution of a Committee of Creditors – see Section 18(1)(b) and(c) of the Code. Under Section 20 of the Code, the interim resolutionprofessional is to make every endeavour to protect and preserve theBvalue of the property of the corporate debtor and manage the operationsof the corporate debtor as a going concern.

22. At the first meeting of the Committee of Creditors, whichshall be held within 7 days of its constitution, the Committee, by majorityvote of not less than 66% of the voting share of financial creditors,Cmust immediately resolve to appoint the interim resolution professionalas a resolution professional, or to replace the interim resolutionprofessional by another resolution professional – see Section 22(1) and(2) of the Code. Under Section 23(1), the resolution professional shallconduct the entire CIRP and manage the operations of the corporateDdebtor during the same. Importantly, all meetings of the Committee ofCreditors are to be conducted by the resolution professional, who shallgive notice of such meetings to the members of the Committee ofCreditors, the members of the suspended board of directors, andoperational creditors, provided the amount of their aggregate dues isnot less than 10% of the entire debt owed. Like the duties of the interimEresolution professional under Section 18 of the Code, it shall be the dutyof the resolution professional to preserve and protect assets of thecorporate debtor including the continued business operations of thecorporate debtor – see Section 25(1) of the Code. For this purpose, heis to maintain an updated list of claims; convene and attend all meetings Fof the Committee of Creditors; prepare the information memorandumin accordance with Section 29 of the Code; invite prospective resolutionapplicants; and present all resolution plans at the meetings of theCommittee of Creditors – see Section 25(2)(e) to (i) of the Code. UnderSection 29(1) of the Code, the resolution professional shall prepare an information memorandum containing all relevant information, as mayGbe specified, so that a resolution plan may then be formulated by aprospective resolution applicant. Under Section 30 of the Code, theresolution applicant must then submit a resolution plan to the resolutionprofessional, prepared on the basis of the information memorandum.After this, the resolution professional must present to the CommitteeHof Creditors, for its approval, such resolution plans which conform to

the conditions referred to in Section 30(2) of the Code – see Section30(3) of the Code. If the resolution plan is approved by the requisitemajority of the Committee of Creditors, it is then the duty of theresolution professional to submit the resolution plan as approved by theCommittee of Creditors to the Adjudicating Authority – see Section30(6) of the Code.

23. The aforesaid provisions of the Code are then fleshed out inthe 2016 Regulations. Under Chapter IV of the aforesaid Regulations,claims by operational creditors, financial creditors, other creditors,workmen and employees are to be submitted to the resolutionprofessional along with proofs thereof – see Regulations 7 to 12.Thereafter, under Regulation 13, the resolution professional shall verifyeach claim as on the insolvency commencement date, and thereuponmaintain a list of creditors containing the names of creditors along withthe amounts claimed by them, the amounts admitted by him, and thesecurity interest, if any, in respect of such claims, and constantly updatethe aforesaid list – see Regulation 13(1).

24. Chapter X of the Regulations then deals with resolution plansthat are submitted. Under Regulation 35, “fair value” as defined byRegulation 2(hb)[1] and “liquidation value” as defined by Regulation 2(k)[2]shall be determined by two registered valuers appointed underRegulation 27, which shall be handed over the resolution professional.

25. After receipt of the resolution plans in accordance with theCode and the Regulations, the resolution professional shall then providethe fair value and liquidation value to every member of the Committeeof Creditors – see Regulation 35(2). Regulation 36 is important as itforms the basis for the submission of a resolution plan. The informationmemorandum, spoken of by this regulation, must contain the following:

1 Under Regulation 2(hb), Insolvency and Bankruptcy Board of India (InsolvencyResolution Process for Corporate Persons) Regulations, 2016 - “fair value” meansthe estimated realizable value of the assets of the corporate debtor, if they were tobe exchanged on the insolvency commencement date between a willing buyer and awilling seller in an arm’s length transaction, after proper marketing and where theparties had acted knowledgeably, prudently and without compulsion 2 Id. Under Regulation 2(k) - “liquidation value” means the estimated realizable valueof the assets of the corporate debtor, if the corporate debtor were to be liquidatedon the insolvency commencement date.

A

B

C

D

E

F

G

H

SUPREME COURT REPORTS

A“(a) assets and liabilities with such description, as on theinsolvency commencement date, as are generallynecessary for ascertaining their values.

Explanation: “Description” includes the details such asdate of acquisition, cost of acquisition, remaining usefulBlife, identification number, depreciation charged, bookvalue, and any other relevant details.

(b) the latest annual financial statements;

(c) audited financial statements of the corporate debtor forCthe last two financial years and provisional financialstatements for the current financial year made up to adate not earlier than fourteen days from the date of theapplication; (d) a list of creditors containing the names of creditors, theamounts claimed by them, the amount of their claimsDadmitted and the security interest, if any, in respect ofsuch claims; (e) particulars of a debt due from or to the corporate debtorwith respect to related parties;

(f) details of guarantees that have been given in relation tothe debts of the corporate debtor by other persons,specifying which of the guarantors is a related party; E

(g) the names and addresses of the members or partnersholding at least one per cent stake in the corporateFdebtor along with the size of stake; (h) details of all material litigation and an ongoinginvestigation or proceeding initiated by Government andstatutory authorities;

(i) the number of workers and employees and liabilities ofGthe corporate debtor towards them; (j) ***

(k) ***

(l) other information, which the resolution professionalHdeems relevant to the committee.”

26. Under Regulation 36-A, the resolution professional shall thenpublish brief particulars of the invitation for expression of interest inForm G of the Schedule. This document must also, inter alia, providefor such basic information about the corporate debtor as may be requiredby a prospective resolution applicant for its expression of interest – seeRegulation 36-A (4)(c). The resolution professional, once he receivesa proposed resolution plan, must then conduct due diligence based onthe material on record, in order that the prospective resolution applicantcomplies with Section 25(2)(h) of the Code (which, inter alia, requiresprospective resolution applicants to fulfil such criteria as may be laiddown, having regard to the complexity and scale of operations of thebusiness of the corporate debtor); the provisions of Section 29-A; andother requirements as may be specified in the invitation for expressionof interest – see Regulation 36-A(8). Once this is done, the resolutionprofessional shall issue a provisional list of eligible prospective resolutionapplicants to the Committee of Creditors, and after considering anyobjection to their inclusion or exclusion, shall then issue the final list ofprospective resolution applicants to the Committee of Creditors – seeRegulation 36-A (10) to (12). Under Regulation 36-B, the resolutionprofessional shall issue the information memorandum, evaluation matrix,as defined by Regulation 2(h)(a)[3], and a request for resolution planwithin the time stated. Importantly, the resolution professional shallendeavour to submit the resolution plan approved by the Committee ofCreditors to the Adjudicating Authority, at least 15 days before themaximum period for completion of CIRP, along with a compliancecertificate in Form H of the Schedule.

27. The detailed provisions that have been stated hereinabovemake it clear that the resolution professional is a person who is notonly to manage the affairs of the corporate debtor as a going concernfrom the stage of admission of an application under Sections 7, 9 or 10of the Code till a resolution plan is approved by the AdjudicatingAuthority, but is also a key person who is to appoint and convenemeetings of the Committee of Creditors, so that they may decide uponresolution plans that are submitted in accordance with the detailed 3 Under Regulation 2(ha), Insolvency and Bankruptcy Board of India (InsolvencyResolution Process for Corporate Persons) Regulations, 2016 – (ha) - “evaluationmatrix” means such parameters to be applied and the manner of applying suchparameters, as approved by the committee, for consideration of resolution plansfor its approval A

B

C

D

E

F

G

H

Ainformation given to resolution applicants by the resolution professional.Another very important function of the resolution professional is tocollect, collate and finally admit claims of all creditors, which must thenbe examined for payment, in full or in part or not at all, by the resolutionapplicant and be finally negotiated and decided by the Committee ofCreditors. In fact, in ArcelorMital India (supra), this Court referredBto the role of the resolution professional under the Code and theaforesaid Regulations, making it clear that the said role is notadjudicatory but administrative, in the following terms:

“80. However, it must not be forgotten that a ResolutionProfessional is only to “examine” and “confirm” that eachCresolution plan conforms to what is provided by Section 30(2).Under Section 25(2)(i), the Resolution Professional shallundertake to present all resolution plans at the meetings of theCommittee of Creditors. This is followed by Section 30(3), whichstates that the Resolution Professional shall present to theDCommittee of Creditors, for its approval, such resolution planswhich confirm the conditions referred to in sub-section (2). Thisprovision has to be read in conjunction with Section 25(2)(i), andwith the second proviso to Section 30(4), which provides thatwhere a resolution applicant is found to be ineligible under Section29-A(c), the resolution applicant shall be allowed by theECommittee of Creditors such period, not exceeding 30 days, tomake payment of overdue amounts in accordance with theproviso to Section 29-A(c). A conspectus of all these provisionswould show that the Resolution Professional is required toexamine that the resolution plan submitted by various applicantsFis complete in all respects, before submitting it to the Committeeof Creditors. The Resolution Professional is not required to takeany decision, but merely to ensure that the resolution planssubmitted are complete in all respects before they are placedbefore the Committee of Creditors, who may or may not approveit. The fact that the Resolution Professional is also to confirmGthat a resolution plan does not contravene any of the provisionsof law for the time being in force, including Section 29-A of theCode, only means that his prima facie opinion is to be given tothe Committee of Creditors that a law has or has not beencontravened. Section 30(2)(e) does not empower the ResolutionHProfessional to “decide” whether the resolution plan does or does not contravene the provisions of law. Regulation 36-A of the CIRPRegulations specifically provides as follows:

“36-A. (8) The resolution professional shall conduct due diligencebased on the material on record in order to satisfy that theprospective resolution applicant complies with—

(a) the provisions of clause (h) of sub-section (2) of Section25; (b) the applicable provisions of Section 29-A, and

(c) other requirements, as specified in the invitation forexpression of interest.

(9) The resolution professional may seek any clarification oradditional information or document from the prospective resolutionapplicant for conducting due diligence under sub-regulation (8).

(10) The resolution professional shall issue a provisional list ofeligible prospective resolution applicants within ten days of thelast date for submission of expression of interest to the committeeand to all prospective resolution applicants who submitted theexpression of interest.

(11) Any objection to inclusion or exclusion of a prospectiveresolution applicant in the provisional list referred to in sub-regulation (10) may be made with supporting documents withinfive days from the date of issue of the provisional list.

(12) On considering the objections received under sub-regulation(11), the resolution professional shall issue the final list ofprospective resolution applicants within ten days of the last datefor receipt of objections, to the committee.”

81. Thus, the importance of the Resolution Professional is toensure that a resolution plan is complete in all respects, and toconduct a due diligence in order to report to the Committee ofCreditors whether or not it is in order. Even though it is notnecessary for the Resolution Professional to give reasons whilesubmitting a resolution plan to the Committee of Creditors, itwould be in the fitness of things if he appends the due diligencereport carried out by him with respect to each of the resolution A

B

C

D

E

F

G

H

A

B

C

D

E

F

G

H

plans under consideration, and to state briefly as to why it doesor does not conform to the law.”

Role of the prospective resolution applicant

28. The UNCITRAL Legislative Guide discusses what ought tobe the contents of a resolution plan in an Insolvency Code in thefollowing terms:

“4. The plan

xxx xxx xxx

18. The question of what is to be included in the plan is closelyrelated to the procedure for approval of the plan, that is, whichcreditors are required to approve the plan and the level of supportrequired for approval, the effect of the plan once approved, thatis, will it bind dissenting creditors and secured creditors and whowill be responsible for implementation of the plan and for ongoingmanagement of the debtor, and whether or not there is arequirement for court confirmation. Many insolvency laws includeprovisions addressing the content of the reorganization plan. Somelaws address the content of the plan by reference to generalcriteria, such as requirements that the reorganization plan shouldadequately and clearly disclose to all parties information regardingboth the financial condition of the debtor and the transformationof legal rights that is being proposed in the plan, or by referenceto minimal requirements, such as that the plan must makeprovision for payment of certain preferred claims. It should benoted that a plan need not modify or otherwise affect the rightsof every class of creditor.

19. Other laws set out more specific requirements as to whatinformation is required in relation to the debtor’s financial situationand the proposals that can be included in a plan. Information onthe financial situation of the debtor could include asset and liabilitystatements; cash flow statements; and information relating to thecauses or reasons for the financial situation of the debtor.Information relating to what is proposed by the plan could include,depending upon the objective of the plan and the circumstancesof a particular debtor, details of classes of claims; claims modifiedor affected under the plan and the treatment to be accorded to

each class under the plan; the continuation or rejection ofcontracts that are not fully executed; the treatment of unexpiredleases; measures and arrangements for dealing with the debtor’sassets (e.g. transfer, liquidation or retention); the sale or othertreatment of encumbered assets; the disclosure and acceptanceprocedure; the rights of disputed claims to take part in the votingand provisions for disputed claims to be resolved; arrangementsconcerning personnel of the debtor; remuneration of managementof the debtor; financing implementation of the plan; extension ofthe maturity date or a change in the interest rate or other termof outstanding security interests; the role to be played by thedebtor in implementation of the plan and identification of thoseto be responsible for future management of the debtor’s business;the settlement of claims and how the amount that creditors willreceive will be more than they would have received in liquidation;payment of interest on claims; distribution of all or any part ofthe assets of the estate among those having an interest in thoseassets; possible changes to the instrument or organic documentconstituting the debtor (e.g. changes to by-laws or articles ofassociation) or the capital structure of the debtor or merger orconsolidation of the debtor with one or more persons; the basisupon which the business will be able to keep trading and can besuccessfully reorganized; supervision of the implementation of theplan; and the period of implementation of the plan, including insome cases a statutory maximum period.

20. Rather than specifying a wide range of detailed informationto be included in a plan, it may be desirable for the insolvencylaw to identify the minimum content of a plan, focusing upon thekey objectives of the plan and procedures for implementation.For example, the insolvency law may require the plan to detailthe classes of creditors and the treatment each is to be accordedin the plan; the terms and conditions of the plan (such astreatment of contracts and the ongoing role of the debtor); andwhat is required for implementation of the plan (such as sale ofassets or parts of the business, extension of maturity dates,changes to capital structure of the business and supervision ofimplementation).”

29. Under the Code, the prospective resolution applicant has aright to receive complete information as to the corporate debtor, debts AB

C

DE

F

G

H

Aowed by it, and its activities as a going concern, prior to the admissionof an application under section 7, 9 or 10 of the Code. For this purpose,it has a right to receive information contained in the informationmemorandum as well as the evaluation matrix mentioned in Regulation36-B. Once it evinces an expression of interest, what follows is laiddown in Regulation 36-A(7) which reads as follows:B“36-A. Invitation for Expression of Interest xxx xxx xxx

(7) An expression of interest shall be unconditional and beaccompanied by-C

(a) an undertaking by the prospective resolution applicantthat it meets the criteria specified by the committeeunder clause (h) of sub-section (2) of section 25; (b) relevant records in evidence of meeting the criteria underDclause (a);

(c) an undertaking by the prospective resolution applicantthat it does not suffer from any ineligibility under section29A to the extent applicable; (d) relevant information and records to enable anassessment of ineligibility under clause (c); E

(e) an undertaking by the prospective resolution applicantthat it shall intimate the resolution professional forthwithif it becomes ineligible at any time during the corporateFinsolvency resolution process; (f) an undertaking by the prospective resolution applicantthat every information and records provided inexpression of interest is true and correct and discoveryof any false information or record at any time willGrender the applicant ineligible to submit resolution plan,forfeit any refundable deposit, and attract penal actionunder the Code; and

(g) an undertaking by the prospective resolution applicantto the effect that it shall maintain confidentiality of theHinformation and shall not use such information to cause an undue gain or undue loss to itself or any other personand comply with the requirements under sub-section (2)of section 29"

Thereafter, the resolution plan submitted by the prospectiveresolution applicant must provide for measures as may be necessaryfor the insolvency resolution of the corporate debtor for maximisationof the value of its assets, which may include transfer or sale of assetsor part thereof, whether subject to security interests or not. The planmay provide for either satisfaction or modification of any securityinterest of a secured creditor and may also provide for reduction in theamount payable to different classes of creditors – see Regulation 37.

30. Accordingly, Regulation 38 then deals with the mandatorycontents of a resolution plan, making it clear that such plan must containa provision that the amount due to operational creditors shall be givenpriority in payment over financial creditors – see Regulation 38(1). Suchplan must also include provisions as to how to deal with the interestsof all stakeholders including financial creditors and operational creditorsof the corporate debtor – Regulation 38 (1A). It must then provide forthe term of the plan, management and control of the business of thecorporate debtor during such term, and its implementation. It must alsodemonstrate that it is feasible and viable, and that the resolutionapplicant has the capability to implement the said plan. Regulation 38,being important, is set out hereinbelow:

“38. Mandatory contents of the resolution plan

(1) The amount due to the operational creditors under a resolutionplan shall be given priority in payment over financial creditors.

(1A) A resolution plan shall include a statement as to how it hasdealt with the interests of all stakeholders, including financialcreditors and operational creditors, of the corporate debtor.

(2) A resolution plan shall provide:

(a) the term of the plan and its implementation schedule; (b) the management and control of the business of thecorporate debtor during its term; and

(c) adequate means for supervising its implementation.

A

B

C

D

E

F

G

H

A(3) A resolution plan shall demonstrate that –

(a) it addresses the cause of default;

(b) it is feasible and viable;

(c) it has provisions for its effective implementation; B

(d) it has provisions for approvals required and the timelinefor the same; and (e) the resolution applicant has the capability to implementthe resolution plan.”

CRole of the committee of creditors in the corporateresolution process

31. Since it is the commercial wisdom of the Committee ofCreditors that is to decide on whether or not to rehabilitate the corporatedebtor by means of acceptance of a particular resolution plan, theDprovisions of the Code and the Regulations outline in detail theimportance of setting up of such Committee, and leaving decisions tobe made by the requisite majority of the members of the aforesaidCommittee in its discretion. Thus, Section 21(2) of the Code mandatesthat the Committee of Creditors shall comprise all financial creditorsof the corporate debtor. “Financial creditors” are defined in Section 5(7)Eof the Code as meaning persons to whom a financial debt is owed andincludes a person to whom such debt has been legally assigned ortransferred. “Financial debt” is then defined in Section 5(8) of the Codeas meaning a debt along with interest, if any, which is disbursed againstthe consideration for the time value of money. “Secured creditor” isFseparately defined in Section 3(30) of the Code as meaning a creditorin favour of whom a security interest is created and “security interest”is defined by Section 3(31) as follows:

“3. Definitions. – In this Code, unless the context otherwiserequires. –

Gxxx xxx xxx

(31) “security interest” means right, title or interest or a claim toproperty, created in favour of, or provided for a secured creditorby a transaction which secures payment or performance of anobligation and includes mortgage, charge, hypothecation,Hassignment and encumbrance or any other agreement or

arrangement securing payment or performance of any obligationof any person:

Provided that security interest shall not include a performanceguarantee;”

32. It is settled by several judgments of this Court that in orderto trigger application of the Code, a neat division has been madebetween financial creditors and operational creditors. It has also beennoticed in some of our judgments that most financial creditors aresecured creditors and most operational creditors are unsecuredcreditors. The rationale for only financial creditors handling the affairsof the corporate debtor and resolving them is for reasons that havebeen deliberated upon by the BLRC Report of 2015, which formed thebasis for the enactment of the Insolvency Code.

33. At this juncture, it is important to set out the relevant extractsfrom the aforementioned report:

“2. Executive Summary

xxx xxx xxx

The key economic question in the bankruptcy process xxx xxx xxx The Committee believes that there is only one correct forum forevaluating such possibilities, and making a decision: a creditorscommittee, where all financial creditors have votes in proportionto the magnitude of debt that they hold. In the past, laws in Indiahave brought arms of the government (legislature, executive orjudiciary) into this question. This has been strictly avoided by theCommittee. The appropriate disposition of a defaulting firm is abusiness decision, and only the creditors should make it.

xxx xxx xxx

5. Process for legal entities

xxx xxx xxx

Business decisions by a creditor committee All decisions on matters of business will be taken by a committeeof the financial creditors. This includes evaluating proposals tokeep the entity as a going concern, including decisions about the A

BC

D

E

F

G

H

A

sale of business or units, retiring or restructuring debt. The debtorwill be a non-voting member on the creditors committee, and willbe invited to all meetings. The voting of the creditors committeewill be by majority, where the majority requires more than 75percent of the vote by weight.

Bxxx xxx xxx

No prescriptions on solutions to resolve the insolvency The choice of the solution to keep the entity as a going concernwill be voted on by the creditors committee. There are noconstraints on the proposals that the Resolution Professional canpresent to the creditors committee. Other than the majority voteof the creditors committee, the Resolution Professional needs toconfirm to the Adjudicator that the final solution complies withthree additional requirements. The first is that the solution mustexplicitly require the repayment of any interim finance and costsof the insolvency resolution process will be paid in priority to otherpayments. Secondly, the plan must explicitly include payment toall creditors not on the creditors committee, within a reasonableperiod after the solution is implemented. Lastly, the plan shouldcomply with existing laws governing the actions of the entitywhile implementing the solutions.

C

D

E

xxx xxx xxx

5.3.1 Steps at the start of the IRP

4. Creation of the creditors committee

The creditors committee will have the power to decide the finalsolution by majority vote in the negotiations. The majority voterequires more than or equal to 75 percent of the creditorscommittee by weight of the total financial liabilities. The majorityvote will also involve a cram down option on any dissentingcreditors once the majority vote is obtained…The Committeedeliberated on who should be on the creditors committee, giventhe power of the creditors committee to ultimately keep the entityas a going concern or liquidate it. The Committee reasoned thatmembers of the creditors committee have to be creditors bothwith the capability to assess viability, as well as to be willing tomodify terms of existing liabilities in negotiations. Typically, F

G

H

operational creditors are neither able to decide on mattersregarding the insolvency of the entity, nor willing to take the riskof postponing payments for better future prospects for the entity.The Committee concluded that, for the process to be rapid andefficient, the Code will provide that the creditors committeeshould be restricted to only the financial creditors.

5.3.3 Obtaining the resolution to insolvency in the IRP

The Committee is of the opinion that there should be freedompermitted to the overall market to propose solutions on keepingthe entity as a going concern. Since the manner and the type ofpossible solutions are specific to the time and environment inwhich the insolvency becomes visible, it is expected to evolveover time, and with the development of the market. The Codewill be open to all forms of solutions for keeping the entity goingwithout prejudice, within the rest of the constraints of the IRP.Therefore, how the insolvency is to be resolved will not beprescribed in the Code. There will be no restriction in the Codeon possible ways in which the business model of the entity, orits financial model, or both, can be changed so as to keep theentity as a going concern. The Code will not state that the entityis to be revived, or the debt is to be restructured, or the entity isto be liquidated. This decision will come from the deliberationsof the creditors committee in response to the solutions proposed”by the market.

34. The aforesaid extracts follow what is stated in theUNCITRAL Legislative Guide which prescribes as follows:

“2. Nature or form of a plan

3. The purpose of reorganization is to maximize the possibleeventual return to creditors, providing a better result than if thedebtor were to be liquidated and to preserve viable businessesas a means of preserving jobs for employees and trade forsuppliers. With different constituents involved in reorganizationproceedings, each may have different views of how the variousobjectives can best be achieved. Some creditors, such as majorcustomers or suppliers, may prefer continued business with thedebtor to rapid repayment of their debt. Some creditors may AB

C

D

E

F

GH

SUPREME COURT REPORTS

Afavour taking an equity stake in the business, while others willnot. Typically, therefore, there is a range of options from whichto select in a given case. If an insolvency law adopts aprescriptive approach to the range of options available orto the choice to be made in a particular case, it is likelyto be too constrictive. It is desirable that the law not restrictBreorganization plans to those designed only to fully rehabilitatethe debtor; prohibit debt from being written off; restrict theamount that must eventually be paid to creditors by specifying aminimum percentage; or prohibit exchange of debt for equity. Anon-intrusive approach that does not prescribe suchClimitations is likely to provide sufficient flexibility to allowthe most suitable of a range of possibilities to be chosenfor a particular debtor.

xxx xxx xxx

20. Rather than specifying a wide range of detailedDinformation to be included in a plan, it may be desirablefor the insolvency law to identify the minimum content ofa plan, focusing upon the key objectives of the plan andprocedures for implementation. For example, the insolvencylaw may require the plan to detail the classes of creditors andEthe treatment each is to be accorded in the plan; the terms andconditions of the plan (such as treatment of contracts and theongoing role of the debtor); and what is required forimplementation of the plan (such as sale of assets or parts ofthe business, extension of maturity dates, changes to capitalFstructure of the business and supervision of implementation).”

35. Section 24 of the Code deals with meetings of the Committeeof Creditors. Though voting on the approval of a resolution plan is onlywith the financial creditors who form the Committee of Creditors, yetGthe resolution professional is to conduct the aforesaid meeting at whichmembers of the suspended board of directors may be present, togetherwith one representative of operational creditors, provided that theaggregate dues owed to all operational creditors is not less than 10%of the entire debt owed – see Sections 24(2),(3) and (4) of the Code.HVoting shall be in accordance with the voting share assigned to each

financial creditor, which is based on the financial debts owed to suchcreditors – see Section 24(6) of the Code.

A

36. Even though it is the resolution professional who is to runthe business of the corporate debtor as a going concern during theintermediate period, yet, such resolution professional cannot take certaindecisions relating to management of the corporate debtor without theprior approval of at least 66% of the votes of the Committee ofCreditors. Section 28 of the Code is important and is set out hereinbelow:

B

“28. Approval of committee of creditors for certain actions

(1) Notwithstanding anything contained in any other law for thetime being in force, the resolution professional, during thecorporate insolvency resolution process, shall not take any of thefollowing actions without the prior approval of the committee ofcreditors namely:—

C

(a) raise any interim finance in excess of the amount as maybe decided by the committee of creditors in theirDmeeting;

(b) create any security interest over the assets of thecorporate debtor;

(c) change the capital structure of the corporate debtor,including by way of issuance of additional securities,creating a new class of securities or buying back orredemption of issued securities in case the corporatedebtor is a company; E

(d) record any change in the ownership interest of thecorporate debtor; F

(e) give instructions to financial institutions maintainingaccounts of the corporate debtor for a debit transactionfrom any such accounts in excess of the amount as maybe decided by the committee of creditors in theirmeeting;G

(f) undertake any related party transaction; (g) amend any constitutional documents of the corporatedebtor; (h) delegate its authority to any other person; H

(i) dispose of or permit the disposal of shares of anyshareholder of the corporate debtor or their nomineesto third parties; A

(j) make any change in the management of the corporatedebtor or its subsidiary; B

(k) transfer rights or financial debts or operational debtsunder material contracts otherwise than in the ordinarycourse of business;

(l) make changes in the appointment or terms of contractof such personnel as specified by the committee ofCcreditors; or (m) make changes in the appointment or terms of contractof statutory auditors or internal auditors of the corporatedebtor

(2) The resolution professional shall convene a meeting of thecommittee of creditors and seek the vote of the creditors priorto taking any of the actions under sub-section (1).

D

(3) No action under sub-section (1) shall be approved by thecommittee of creditors unless approved by a vote of sixty-six perEcent of the voting shares.

(4) Where any action under sub-section (1) is taken by theresolution professional without seeking the approval of thecommittee of creditors in the manner as required in this section,such action shall be void.

F

(5) The committee of creditors may report the actions of theresolution professional under sub-section (4) to the Board fortaking necessary actions against him under this Code.”

Thus, it is clear that since corporate resolution is ultimately inthe hands of the majority vote of the Committee of Creditors, nothingGcan be done qua the management of the corporate debtor by theresolution professional which impacts major decisions to be made inthe interregnum between the taking over of management of thecorporate debtor and corporate resolution by the acceptance of aresolution plan by the requisite majority of the Committee of Creditors.HMost importantly, under Section 30(4), the Committee of Creditors may approve a resolution plan by a vote of not less than 66% of the votingshare of the financial creditors, after considering its feasibility andviability, and various other requirements as may be prescribed by theRegulations.

37. Regulation 18 to 26 of the 2016 Regulations deal withmeetings to be conducted by the Committee of Creditors. The quorumat the meeting is fixed by Regulation 22, and the conduct of the meetingis to take place as under Regulation 24. Voting takes place underRegulation 25 and 26. Most importantly, Regulation 39(3) states:

“39. Approval of resolution plan

xxx xxx xxx

(3) The committee shall evaluate the resolution plans receivedunder sub-regulation (1) strictly as per the evaluation matrix toidentify the best resolution plan and may approve it with suchmodifications as it deems fit Provided that the committee may approve any resolution plan withsuch modifications as it deems fit.”

38. This Regulation fleshes out Section 30(4) of the Code, makingit clear that ultimately it is the commercial wisdom of the Committeeof Creditors which operates to approve what is deemed by a majorityof such creditors to be the best resolution plan, which is finally acceptedafter negotiation of its terms by such Committee with prospectiveresolution applicants.

39. In K. Sashidhar (supra), the role of the Committee ofCreditors in the corporate resolution process was laid down by thisCourt thus:

“20. The CoC is constituted as per Section 21 of the I&B Code,which consists of financial creditors. The term ‘financial creditor’has been defined in Section 5(7) of the I&B Code to mean anyperson to whom a financial debt is owed and includes a personto whom such debt has been legally assigned or transferred to.Be it noted that the process of insolvency resolution andliquidation concerning corporate debtors has been codified in PartII of the I&B Code, comprising of seven Chapters. Chapter Ipredicates that Part II shall apply in matters relating to the A

B

C

D

E

F

G

H

A

B

C

D

E

F

G

H

insolvency and liquidation of corporate debtor where the minimumamount of default is Rs. 1,00,000/-. Section 5 in Chapter I is adictionary clause specific to Part II of the Code. Chapter II dealswith the gamut of procedure to be followed for the corporateinsolvency resolution process. For dealing with the issue on hand,the provisions contained in Chapter II will be significant. Fromthe scheme of the provisions, it is clear that the provisions in PartII of the Code are self-contained code, providing for theprocedure for consideration of the resolution plan by the CoC.

21. The stage at which the dispute concerning the respectivecorporate debtors (KS&PIPL and IIL) had reached theadjudicating authority (NCLT) is ascribable to Section 30(4) ofthe I&B Code, which, at the relevant time in October 2017, readthus:

“30(4)- The committee of creditors may approve a resolutionplan by a vote of not less than seventy five per cent of votingshare of the financial creditors.”

22. If the CoC had approved the resolution plan by requisitepercent of voting share, then as per Section 30(6) of the I&BCode, it is imperative for the resolution professional to submitthe same to the adjudicating authority (NCLT). On receipt of sucha proposal, the adjudicating authority (NCLT) is required to satisfyitself that the resolution plan as approved by CoC meets therequirements specified in Section 30(2). No more and no less.This is explicitly spelt out in Section 31 of the I&B Code, whichread thus (as in October 2017):

“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,it shall by order approve the resolution plan which shall be bindingon the corporate debtor and its employees, members, creditors,guarantors and other stakeholders involved in the resolution plan.

(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.

(3) After the order of approval under sub-section (1),- (a) the moratorium order passed by the AdjudicatingAuthority under section 14 shall cease to have effect;and (b) the resolution professional shall forward all recordsrelating to the conduct of the corporate insolvencyresolution process and the resolution plan to the Boardto be recorded on its database.”

xxx xxx xxx

39. As aforesaid, upon receipt of a “rejected” resolution plan theadjudicating authority (NCLT) is not expected to do anythingmore; but is obligated to initiate liquidation process under Section33(1) of the I&B Code. The legislature has not endowed theadjudicating authority (NCLT) with the jurisdiction or authorityto analyse or evaluate the commercial decision of the CoCmuchless to enquire into the justness of the rejection of theresolution plan by the dissenting financial creditors. From thelegislative history and the background in which the I&B Codehas been enacted, it is noticed that a completely new approachhas been adopted for speeding up the recovery of the debt duefrom the defaulting companies. In the new approach, there is acalm period followed by a swift resolution process to becompleted within 270 days (outer limit) failing which, initiationof liquidation process has been made inevitable and mandatory.In the earlier regime, the corporate debtor could indefinitelycontinue to enjoy the protection given under Section 22 of SickIndustrial Companies Act, 1985 or under other such enactmentswhich has now been forsaken. Besides, the commercial wisdomof the CoC has been given paramount status without any judicialintervention, for ensuring completion of the stated processeswithin the timelines prescribed by the I&B Code. There is anintrinsic assumption that financial creditors are fully informedabout the viability of the corporate debtor and feasibility of theproposed resolution plan. They act on the basis of thoroughexamination of the proposed resolution plan and assessment madeby their team of experts. The opinion on the subject matter A

B

CD

E

F

G

H

Aexpressed by them after due deliberations in the CoC meetingsthrough voting, as per voting shares, is a collective businessdecision. The legislature, consciously, has not provided any groundto challenge the “commercial wisdom” of the individual financialcreditors or their collective decision before the adjudicatingBauthority. That is made nonjusticiable.”

40. The importance of the majority decision of the Committeeof Creditors is then stated in Section 31(1) of the Code which is setout as follows:

“31. Approval of resolution planC

(1) If the Adjudicating Authority is satisfied that the resolutionplan 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 resolutionplan which shall be binding on the corporate debtor and itsDemployees, members, creditors, guarantors and other stakeholdersinvolved in the resolution plan.”

Thus, what is left to the majority decision of the Committee ofCreditors is the “feasibility and viability” of a resolution plan, whichobviously takes into account all aspects of the plan, including the mannerEof distribution of funds among the various classes of creditors. As anexample, take the case of a resolution plan which does not provide forpayment of electricity dues. It is certainly open to the Committee ofCreditors to suggest a modification to the prospective resolutionapplicant to the effect that such dues ought to be paid in full, so thatFthe carrying on of the business of the corporate debtor does not becomeimpossible for want of a most basic and essential element for thecarrying on of such business, namely, electricity. This may, in turn, beaccepted by the resolution applicant with a consequent modification asto distribution of funds, payment being provided to a certain type ofoperational creditor, namely, the electricity distribution company, out ofGupfront payment offered by the proposed resolution applicant which mayalso result in a consequent reduction of amounts payable to otherfinancial and operational creditors. What is important is that it is thecommercial wisdom of this majority of creditors which is to determine,through negotiation with the prospective resolution applicant, as to howHand in what manner the corporate resolution process is to take place.

Jurisdiction of the Adjudicating Authority and theAppellate Tribunal

41. As has already been seen hereinabove, it is the AdjudicatingAuthority which first admits an application by a financial or operationalcreditor, or by the corporate debtor itself under Section 7, 9 and 10 ofthe Code. Once this is done, within the parameters fixed by the Code,and as expounded upon by our judgments in Innoventive IndustriesLtd. v. ICICI Bank, (2018) 1 SCC 407 and Macquarie Bank Ltdv. Shilpi Cable Technologies Ltd. (2018) 2 SCC 674, the AdjudicatingAuthority then appoints an interim resolution professional who takesadministrative decisions as to the day to day running of the corporatedebtor; collation of claims and their admissions; and the calling forresolution plans in the manner stated above. After a resolution plan isapproved by the requisite majority of the Committee of Creditors, theaforesaid plan must then pass muster of the Adjudicating Authority underSection 31(1) of the Code. The Adjudicating Authority’s jurisdiction iscircumscribed by Section 30(2) of the Code. In this context, the decisionof this court in K. Sashidhar (supra) is of great relevance.

42. In K. Sashidhar (supra) this Court was called upon to decideupon the scope of judicial review by the Adjudicating Authority. ThisCourt set out the questions to be determined as follows:

“18. Having heard learned counsel for the parties, the mootquestion is about the sequel of the approval of the resolution planby the CoC of the respective corporate debtor, namely KS&PIPLand IIL, by a vote of less than seventy five percent of votingshare of the financial creditors; and about the correctness of theview taken by the NCLAT that the percentage of voting shareof the financial creditors specified in Section 30(4) of the I&BCode is mandatory. Further, is it open to the adjudicating authority/appellate authority to reckon any other factor (other than specifiedin Sections 30(2) or 61(3) of the I&B Code as the case maybe) which, according to the resolution applicant and thestakeholders supporting the resolution plan, may be relevant?

xxx xxx xxx

25. The Court, however, was not called upon to deal with thespecific issue that is being considered in the present cases namely,the scope of judicial review by the adjudicatory authority in relation AB

C

D

E

F

G

H

Ato the opinion expressed by the CoC on the proposal for approvalof the resolution plan.”

After adverting to the 2016 Regulations, the Court set out thejurisdiction of the Adjudicating Authority as well as the AppellateTribunal as follows:

B

“42. Whereas, the discretion of the adjudicating authority (NCLT)is circumscribed by Section 31 limited to scrutiny of the resolutionplan “as approved” by the requisite percent of voting share offinancial creditors. Even in that enquiry, the grounds on whichthe adjudicating authority can reject the resolution plan is inreference to matters specified in Section 30(2), when theresolution plan does not conform to the stated requirements.Reverting to Section 30(2), the enquiry to be done is in respectof whether the resolution plan provides: (i) the payment ofinsolvency resolution process costs in a specified manner inpriority to the repayment of other debts of the corporate debtor,(ii) the repayment of the debts of operational creditors inprescribed manner, (iii) the management of the affairs of thecorporate debtor, (iv) the implementation and supervision of theresolution plan, (v) does not contravene any of the provisions ofthe law for the time being in force, (vi) conforms to such otherrequirements as may be specified by the Board. The Boardreferred to is established under Section 188 of the I&B Code.The powers and functions of the Board have been delineated inSection 196 of the I&B Code. None of the specified functionsof the Board, directly or indirectly, pertain to regulating themanner in which the financial creditors ought to or ought not toexercise their commercial wisdom during the voting on theresolution plan under Section 30(4) of the I&B Code. Thesubjective satisfaction of the financial creditors at the time ofvoting is bound to be a mixed baggage of variety of factors. Towit, the feasibility and viability of the proposed resolution planand including their perceptions about the general capability of theresolution applicant to translate the projected plan into a reality.The resolution applicant may have given projections backed bynormative data but still in the opinion of the dissenting financialcreditors, it would not be free from being speculative. Theseaspects are completely within the domain of the financial C

D

E

F

G

H

creditors who are called upon to vote on the resolution plan underSection 30(4) of the I&B Code.

43. For the same reason, even the jurisdiction of the NCLATbeing in continuation of the proceedings would be circumscribedin that regard and more particularly on account of Section 32 ofthe I&B Code, which envisages that any appeal from an orderapproving the resolution plan shall be in the manner and on thegrounds specified in Section 61(3) of the I&B Code. Section61(3) of the I&B Code reads thus:

“61. Appeals and Appellate Authority.-(1) Notwithstandinganything to the contrary contained under the Companies Act, 2013(18 of 2013), any person aggrieved by the order of theAdjudicating Authority under this part may prefer an appeal tothe National Company Law Appellate Tribunal.

(2) xxx xxx xxx

(3) An appeal against an order approving a resolution plan undersection 31 may be filed on the following grounds, namely:—

(i) the approved resolution plan is in contravention of theprovisions of any law for the time being in force;

(ii) there has been material irregularity in exercise of thepowers by the resolution professional during thecorporate insolvency resolution period;

(iii) the debts owed to operational creditors of the corporatedebtor have not been provided for in the resolution planin the manner specified by the Board;

(iv) the insolvency resolution process costs have not beenprovided for repayment in priority to all other debts; or

(v) the resolution plan does not comply with any othercriteria specified by the Board.

xxxxxxxxx.”

44. On a bare reading of the provisions of the I&B Code, it wouldappear that the remedy of appeal under Section 61(1) is againstan “order passed by the adjudicating authority (NCLT)” - whichwe will assume may also pertain to recording of the fact that A

B

C

D

E

F

G

H

A

Athe proposed resolution plan has been rejected or not approvedby a vote of not less than 75% of voting share of the financialcreditors. Indubitably, the remedy of appeal including the widthof jurisdiction of the appellate authority and the grounds of appeal,is a creature of statute. The provisions investing jurisdiction andauthority in the NCLT or NCLAT as noticed earlier, has not madeBthe commercial decision exercised by the CoC of not approvingthe resolution plan or rejecting the same, justiciable. This positionis reinforced from the limited grounds specified for instituting anappeal that too against an order “approving a resolution plan”under Section 31. First, that the approved resolution plan is inCcontravention of the provisions of any law for the time being inforce. Second, there has been material irregularity in exerciseof powers “by the resolution professional” during the corporateinsolvency resolution period. Third, the debts owed to operationalcreditors have not been provided for in the resolution plan in theprescribed manner. Fourth, the insolvency resolution plan costsDhave not been provided for repayment in priority to all other debts.Fifth, the resolution plan does not comply with any other criteriaspecified by the Board. Significantly, the matters or grounds -be it under Section 30(2) or under Section 61(3) of the I&B Code- are regarding testing the validity of the “approved” resolutionEplan by the CoC; and not for approving the resolution plan whichhas been disapproved or deemed to have been rejected by theCoC in exercise of its business decision.

45. Indubitably, the inquiry in such an appeal would be limited tothe power exercisable by the resolution professional under SectionF30(2) of the I&B Code or, at best, by the adjudicating authority(NCLT) under Section 31(2) read with 31(1) of the I&B Code.No other inquiry would be permissible. Further, the jurisdictionbestowed upon the appellate authority (NCLAT) is also expresslycircumscribed. It can examine the challenge only in relation toGthe grounds specified in Section 61(3) of the I&B Code, whichis limited to matters “other than” enquiry into the autonomy orcommercial wisdom of the dissenting financial creditors. Thus,the prescribed authorities (NCLT/NCLAT) have been endowedwith limited jurisdiction as specified in the I&B Code and not toact as a court of equity or exercise plenary powers.

H

H

46. In our view, neither the adjudicating authority (NCLT) northe appellate authority (NCLAT) has been endowed with thejurisdiction to reverse the commercial wisdom of the dissentingfinancial creditors and that too on the specious ground that it isonly an opinion of the minority financial creditors. The fact thatsubstantial or majority percent of financial creditors haveaccorded approval to the resolution plan would be of no avail,unless the approval is by a vote of not less than 75% (afteramendment of 2018 w.e.f. 06.06.2018, 66%) of voting share ofthe financial creditors. To put it differently, the action of liquidationprocess postulated in Chapter-III of the I&B Code, is avoidable,only if approval of the resolution plan is by a vote of not lessthan 75% (as in October, 2017) of voting share of the financialcreditors. Conversely, the legislative intent is to uphold the opinionor hypothesis of the minority dissenting financial creditors. Thatmust prevail, if it is not less than the specified percent (25% inOctober, 2017; and now after the amendment w.e.f. 06.06.2018,44%). The inevitable outcome of voting by not less than requisitepercent of voting share of financial creditors to disapprove theproposed resolution plan, de jure, entails in its deemed rejection.

xxx xxx xxx

49. The argument, though attractive at the first blush, but ifaccepted, would require us to re-write the provisions of the I&BCode. It would also result in doing violence to the legislative intentof having consciously not stipulated that as a ground - to challengethe commercial wisdom of the minority (dissenting) financialcreditors. Concededly, the process of resolution plan isnecessitated in respect of corporate debtors in whom theirfinancial creditors have lost hope of recovery and who haveturned into non-performer or a chronic defaulter. The fact thatthe concerned corporate debtor was still able to carry on itsbusiness activities does not obligate the financial creditors topostpone the recovery of the debt due or to prolong their lossesindefinitely. Be that as it may, the scope of enquiry and thegrounds on which the decision of “approval” of the resolutionplan by the CoC can be interfered with by the adjudicatingauthority (NCLT), has been set out in Section 31(1) read withSection 30(2) and by the appellate tribunal (NCLAT) underSection 32 read with Section 61(3) of the I&B Code. No AB

C

D

E

F

G

H

A

B

C

D

E

F

G

H

corresponding provision has been envisaged by the legislature toempower the resolution professional, the adjudicating authority(NCLT) or for that matter the appellate authority (NCLAT), toreverse the “commercial decision” of the CoC muchless of thedissenting financial creditors for not supporting the proposedresolution plan. Whereas, from the legislative history there iscontra indication that the commercial or business decisions of thefinancial creditors are not open to any judicial review by theadjudicating authority or the appellate authority.

51. Suffice it to observe that in the I&B Code and the regulationsframed thereunder as applicable in October 2017, there was noneed for the dissenting financial creditors to record reasons fordisapproving or rejecting a resolution plan. Further, asaforementioned, there is no provision in the I&B Code whichempowers the adjudicating authority (NCLT) to oversee thejustness of the approach of the dissenting financial creditors inrejecting the proposed resolution plan or to engage in judicialreview thereof. Concededly, the inquiry by the resolutionprofessional precedes the consideration of the resolution plan bythe CoC. The resolution professional is not required to expresshis opinion on matters within the domain of the financialcreditor(s), to approve or reject the resolution plan, under Section30(4) of the I&B Code. At best, the Adjudicating Authority(NCLT) may cause an enquiry into the “approved” resolutionplan on limited grounds referred to in Section 30(2) read withSection 31(1) of the I&B Code. It cannot make any other inquirynor is competent to issue any direction in relation to the exerciseof commercial wisdom of the financial creditors - be it forapproving, rejecting or abstaining, as the case may be. Even theinquiry before the Appellate Authority (NCLAT) is limited to thegrounds under Section 61(3) of the I&B Code. It does notpostulate jurisdiction to undertake scrutiny of the justness of theopinion expressed by financial creditors at the time of voting. Totake any other view would enable even the minority dissentingfinancial creditors to question the logic or justness of thecommercial opinion expressed by the majority of the financialcreditors albeit by requisite percent of voting share to approvethe resolution plan; and in the process authorize the adjudicatingauthority to reject the approved resolution plan upon acceptingsuch a challenge. That is not the scope of jurisdiction vested in the adjudicating authority under Section 31 of the I&B Codedealing with approval of the resolution plan.”

A

Thus, it is clear that the limited judicial review available, whichcan in no circumstance trespass upon a business decision of the majorityof the Committee of Creditors, has to be within the four corners ofSection 30(2) of the Code, insofar as the Adjudicating Authority isconcerned, and Section 32 read with Section 61(3) of the Code, insofaras the Appellate Tribunal is concerned, the parameters of such reviewhaving been clearly laid down in K. Sashidhar (supra).

B

43. However, Shri Sibal exhorted us to hold that K. Sashidhar(supra) missed a very vital provision of the Code which is contained inSection 60(5) of the Code. Section 60(5) reads as follows:

C

“60. Adjudicating Authority for corporate persons xxx xxx xxx

(5) Notwithstanding anything to the contrary contained in anyDother law for the time being in force, the National Company LawTribunal shall have jurisdiction to entertain or dispose of—

(a) any application or proceeding by or against the corporatedebtor or corporate person; (b) any claim made by or against the corporate debtor orEcorporate person, including claims by or against any ofits subsidiaries situated in India; and

(c) any question of priorities or any question of law or facts,arising out of or in relation to the insolvency resolutionor liquidation proceedings of the corporate debtor orcorporate person under this Code.”

F

Issues

It will be noticed that the non-obstante clause of Section 60(5)speaks of any other lawfor the time being in force, which obviouslycannot include the provisions of the Code itself. Secondly, Section60(5)(c) is in the nature of a residuary jurisdiction vested in the NCLTso that the NCLT may decide all questions of law or fact arising outof or in relation to insolvency resolution or liquidation under the Code.Such residual jurisdiction does not in any manner impact Section 30(2)of the Code which circumscribes the jurisdiction of the AdjudicatingAuthority when it comes to the confirmation of a resolution plan, ashas been mandated by Section 31(1) of the Code. A harmonious reading, G

H

Atherefore, of Section 31(1) and Section 60(5) of the Code would leadto the result that the residual jurisdiction of the NCLT under Section60(5)(c) cannot, in any manner, whittle down Section 31(1) of the Code,by the investment of some discretionary or equity jurisdiction in theAdjudicating Authority outside Section 30(2) of the Code, when itcomes to a resolution plan being adjudicated upon by the AdjudicatingBAuthority. This argument also must needs be rejected.

44. The minimum value that is required to be paid to operationalcreditors under a resolution plan is set out under Section 30(2)(b) ofthe Code as being the amount to be paid to such creditors in the eventof a liquidation of the corporate debtor under Section 53. The InsolvencyCCommittee constituted by the Government in 2018 was tasked withstudying the major issues that arise in the working of the Code and torecommend changes, if any, required to be made to the Code. TheInsolvency Committee Report, 2018 (hereinafter referred to as “TheCommittee Report, 2018”), inter alia, deliberated upon the objectionsDto Section 30(2)(b) of the Code, inasmuch as it provided for a minimumpayment of a “liquidation value” to the operational creditors and nothingmore, and concluded as follows:

“18. VALUE GUARANTEED TO OPERATIONALCREDITORS UNDER A RESOLUTION PLAN

E

18.1 Section 30(2)(b) of the Code requires the RP to ensure thatevery resolution plan provides for payment of at least theliquidation value to all operational creditors. Regulation 38(1)(b)of the CIRP Regulations provides that liquidation value must bepaid to operational creditors prior in time to all financial creditorsFand within thirty days of approval of resolution plan by the NCLT.The BLRC Report states that the guarantee of liquidation valuehas been provided to operational creditors since they are notallowed to be part of the CoC which determines the fate of thecorporate debtor. (BLRC Report, 2015)

G18.2 However, certain public comments received by theCommittee stated that, in practice, the liquidation value which isguaranteed to the operational creditors may be negligible as theyfall under the residual category of creditors under section 53 ofthe Code. Particularly, in the case of unsecured operationalcreditors, it was argued that they will have no incentive toHcontinue supplying goods or services to the corporate debtor for it to remain a ‘going concern’ given that their chances ofrecovery are abysmally low.

18.3 The Committee deliberated on the status of operationalcreditors and their role in the CIRP. It considered the viability ofusing ‘fair value’ as the floor to determine the value to be givento operational creditors. Fair value is defined under regulation2(1)(hb) of the CIRP Regulations to mean “the estimatedrealizable value of the assets of the corporate debtor, if they wereto be exchanged on the insolvency commencement date betweena willing buyer and a willing seller in an arm’s length transaction,after proper marketing and where the parties had actedknowledgeably, prudently and without compulsion.” However, itwas felt that assessment and payment of the fair value upfront,may be difficult. The Committee also discussed the possibilityof using ‘resolution value’ or ‘bid value’ as the floor to beguaranteed to operational creditors but neither of these weredeemed suitable.

18.4 It was stated to the Committee that liquidation value hasbeen provided as a floor and in practice, many operationalcreditors may get payments above this value. The Committeeappreciated the need to protect interests of operational creditorsand particularly Micro, Small and Medium Enterprises(“MSMEs”). In this regard, the Committee observed that inpractice most of the operational creditors that are critical to thebusiness of the corporate debtor are paid out as part of theresolution plan as they have the power to choke the corporatedebtor by cutting off supplies. Illustratively, in the case ofSynergies-Dooray Automative Ltd. (Company Appeal No. 123/2017, NCLT Hyderabad, Date of decision – 02 August, 2017),the original resolution plan provided for payment to operationalcreditors above the liquidation value but contemplated that itwould be made in a staggered manner after payment to financialcreditors, easing the burden of the 30-day mandate providedunder regulation 38 of the CIRP Regulations. However, the samewas modified by the NCLT and operational creditors wererequired to be paid prior in time, due to the quantum of debt andnature of the creditors. Similarly, the approved resolution plan inthe case of Hotel Gaudavan Pvt. Ltd. (Company Appeal No.37/2017, NCLT Principal Bench, Date of decision – 13

AB

C

D

E

F

GH

ADecember, 2017) provided for payment of all existing dues ofthe operational creditors without any write-off. The Committeefelt that the interests of operational creditors must be protected,not by tinkering with what minimum must be guaranteed to themstatutorily, but by improving the quality of resolution plans overall.This could be achieved by dedicated efforts of regulatory bodiesBincluding the IBBI and Indian Banks’ Association.

18.5 Finally, the Committee agreed that presently, most of theresolution plans are in the process of submission and there is noempirical evidence to further the argument that operationalcreditors do not receive a fair share in the resolution processCunder the current scheme of the Code. Hence, the Committeedecided to continue with the present arrangement without makingany amendments to the Code.”

DUltimately, the Committee decided against any amendment to bemade to the existing scheme of the Code, thereby retaining theprescription as to the minimum value that was to be paid to theoperational creditors under a resolution plan.

45. However, as has been correctly argued on behalf of theEoperational 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 doubt that akey objective of the Code is to ensure that the corporate debtor keepsoperating as a going concern during the insolvency resolution processand must therefore make past and present payments to variousFoperational creditors without which such operation as a going concernwould 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 Regulationsall speak of the corporate debtor running as a going concern duringthe insolvency resolution process. Workmen need to be paid, electricityGdues 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 toHreorganisation and insolvency resolution of corporate persons, partnership firms and individuals in a 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 what issought to be achieved by the Code. The Code is first andforemost, a Code for reorganisation and insolvency resolution ofcorporate debtors. Unless such reorganisation is effected in atime-bound manner, the value of the assets of such persons willdeplete. Therefore, maximisation of value of the assets of suchpersons so that they are efficiently run as going concerns isanother very important objective of the Code. This, in turn, willpromote entrepreneurship as the persons in management of thecorporate debtor are removed and replaced by entrepreneurs.When, therefore, a resolution plan takes off and the corporatedebtor is brought back into the economic mainstream, it is ableto repay its debts, which, in turn, enhances the viability of creditin the hands of banks and financial institutions. Above all,ultimately, the interests of all stakeholders are looked after asthe corporate debtor itself becomes a beneficiary of the resolutionscheme—workers are paid, the creditors in the long run will berepaid in full, and shareholders/investors are able to maximisetheir investment. Timely resolution of a corporate debtor who isin the red, by an effective legal framework, would go a long wayto support the development of credit markets. Since moreinvestment can be made with funds that have come back intothe economy, business then eases up, which leads, overall, tohigher economic growth and development of the Indian economy.What is interesting to note is that the Preamble does not, in anymanner, refer to liquidation, which is only availed of as a lastresort if there is either no resolution plan or the resolution planssubmitted are not up to the mark. Even in liquidation, the liquidatorcan sell the business of the corporate debtor as a going concern.(See ArcelorMittal [ArcelorMittal (India) (P) Ltd. v. SatishKumar Gupta, (2019) 2 SCC 1] at para 83, fn 3).”

AB

C

DE

F

G

H

(emphasis supplied)

AB

C

DE

F

G

H

A46. This is the reason why Regulation 38(1A) speaks of aresolution plan including a statement as to how it has dealt with theinterests of all stakeholders, including operational creditors of thecorporate debtor. Regulation 38(1) also states that the amount due tooperational creditors under a resolution plan shall be given priority inpayment over financial creditors. If nothing is to be paid to operationalBcreditors, the minimum, being liquidation value - which in most caseswould amount to nil after secured creditors have been paid - wouldcertainly not balance the interest of all stakeholders or maximise thevalue of assets of a corporate debtor if it becomes impossible to continuerunning its business as a going concern. Thus, it is clear that when theCCommittee of Creditors exercises its commercial wisdom to arrive ata business decision to revive the corporate debtor, it must necessarilytake into account these key features of the Code before it arrives at acommercial decision to pay off the dues of financial and operationalcreditors. There is no doubt whatsoever that the ultimate discretion ofDwhat to pay and how much to pay each class or sub-class of creditorsis with the Committee of Creditors, but, the decision of such Committeemust reflect the fact that it has taken into account maximising the valueof the assets of the corporate debtor and the fact that it has adequatelybalanced the interests of all stakeholders including operational creditors.This being the case, judicial review of the Adjudicating Authority thatEthe resolution plan as approved by the Committee of Creditors has metthe requirements referred to in Section 30(2) would include judicialreview that is mentioned in Section 30(2)(e), as the provisions of theCode are also provisions of law for the time being in force. Thus, whilethe Adjudicating Authority cannot interfere on merits with the commercialFdecision taken by the Committee of Creditors, the limited judicial reviewavailable is to see that the Committee of Creditors has taken into accountthe fact that the corporate debtor needs to keep going as a going concernduring the insolvency resolution process; that it needs to maximise thevalue of its assets; and that the interests of all stakeholders includingoperational creditors has been taken care of. If the AdjudicatingGAuthority finds, on a given set of facts, that the aforesaid parametershave not been kept in view, it may send a resolution plan back to theCommittee of Creditors to re-submit such plan after satisfying theaforesaid parameters. The reasons given by the Committee of Creditorswhile approving a resolution plan may thus be looked at by theHAdjudicating Authority only from this point of view, and once it is

satisfied that the Committee of Creditors has paid attention to thesekey features, it must then pass the resolution plan, other things beingequal.

Secured and unsecured creditors; the equality principle

47. The impugned NCLAT judgment has applied an equalityprinciple down the board stating that whether creditors are secured orunsecured, financial or operational, equitable treatment demands thatthey all be treated as one group of creditors similarly situate, as a resultof which no differences can be made in terms of the amount of debtto be repaid to them based on whether they are secured or unsecured,and whether they are financial or operational creditors. The aforesaidjudgment relies upon certain paragraphs of this Court’s judgment inSwiss Ribbons (supra) to buttress the aforesaid finding.

48. The UNCITRAL Legislative Guide states:- “Designing the key objectives and structure of an effectiveand efficient insolvency law xxx xxx xxx

4. Ensuring equitable treatment of similarly situated creditors

7. The objective of equitable treatment is based on the notionthat, in collective proceedings, creditors with similar legal rightsshould be treated fairly, receiving a distribution on their claim inaccordance with their relative ranking and interests. This keyobjective recognizes that all creditors do not need to be treatedidentically, but in a manner that reflects the different bargainsthey have struck with the debtor. This is less relevant as a definingfactor where there is no specific debt contract with the debtor,such as in the case of damage claimants (e.g. for environmentaldamage) and tax authorities. Even though the principle ofequitable treatment may be modified by social policy on prioritiesand give way to the prerogatives pertaining to holders of claimsor interests that arise, for example, by operation of law, it retainsits significance by ensuring that the priority accorded to the claimsof a similar class affects all members of the class in the samemanner. The policy of equitable treatment permeates manyaspects of an insolvency law, including the application of the stayor suspension, provisions to set aside acts and transactions and A

BC

D

E

F

G

H

A

B

C

D

E

F

G

H

recapture value for the insolvency estate, classification of claims,voting procedures in reorganization and distribution mechanisms.An insolvency law should address problems of fraud andfavouritism that may arise in cases of financial distress byproviding, for example, that acts and transactions detrimental toequitable treatment of creditors can be avoided.

xxx xxx xxx

5. Approval of a plan

xxx xxx xxx

(i) Classification of claims

27. The primary purpose of classifying claims is to satisfy therequirements to provide fair and equitable treatment to creditors,treating similarly situated claims in the same manner and ensuringthat all creditors in a particular class are offered the same menuof terms by the reorganization plan. It is one way to ensure thatpriority claims are treated in accordance with the priorityestablished under the insolvency law. It may also make it easierto treat the claims of major creditors who can be persuaded toreceive different treatment from the general class of unsecuredcreditors, where that treatment may be necessary to make theplan feasible. Classification can, however, increase the complexityand costs of the insolvency proceedings, depending upon howmany different classes are identified. An alternative, to ensurethat creditors who should receive special treatment are notoppressed by the majority, may be to give those groups theopportunity to challenge the decision of the majority in court ifthey have not been treated in a fair and equitable manner. Thefact that such a facility exists may operate to discouragemajorities from making proposals that would unfairlydisadvantage priority creditors.

(ii) Treatment of dissenting creditors

28. As to the treatment of dissenting creditors, it will be essentialto provide a way of imposing a plan agreed by the majority of aclass upon the dissenting minority in order to increase the chancesof success of the reorganization. It may also be necessary,depending upon the mechanism that is chosen for voting on the plan and whether creditors vote in classes, to consider whetherthe plan can be made binding upon dissenting classes of creditorsand other affected parties.

29. To the extent that a plan can be approved and enforced upondissenting parties, there will be a need to ensure that the contentof the plan provides appropriate protection for those dissentingparties and, in particular, that their rights are not unfairly affected.The law might provide, for example, that dissenting creditors cannot be bound unless assured of certain treatment. As a generalprinciple, that treatment might be that the creditors will receiveat least as much under the plan as they would have received inliquidation proceedings. If the creditors are secured, the treatmentrequired may be that the creditor receives payment of the valueof its security interest, while in the case of unsecured creditorsit may be that any junior interests, including equity holders, receivenothing. To the extent that the approval procedure results in asignificant impairment of the claims of creditors and otheraffected parties without their consent (in particular securedcreditors), there is a risk that creditors will be unwilling to providecredit in the future. The mechanism for approval of the plan, andthe availability of appropriate safeguards, is therefore ofconsiderable importance to the protection of these interests.

xxx xxx xxx

(c) Approval by secured and priority creditors

(i) The need for secured and priority creditors to vote

34. In many cases of insolvency, secured claims will representa significant portion of the value of the debt owed by the debtor.Different approaches can be taken to approval of the plan bysecured and priority creditors. As a general principle, however,the extent to which a secured creditor is entitled to vote willdepend upon the manner in which the insolvency regime treatssecured creditors, the extent to which a reorganization plan canaffect the security interest of the secured creditor and the extentto which the value of encumbered assets will satisfy the securedcreditor’s claim.

35. Under one approach, where the insolvency law does notaffect secured creditors and, in particular, does not preclude them ABC

D

E

FG

H

A

from enforcing their rights against the encumbered assets, thereis no need to give these creditors the right to vote since theirsecurity interests will not be affected by the plan. Prioritycreditors are in a similar position under this approach—the plancannot impair the value of their claims and they are entitled toreceive full payment before creditors without priority are paid.The limitation of this approach, however, is that it may reducethe chances for a successful reorganization where theencumbered assets or modification of the rights of such creditorsare key to the success of the plan. If the secured creditor is notbound by the plan, the election by the secured creditor to enforceits rights, such as by repossessing and selling the encumberedasset, may make reorganization of the business impossible toimplement. Similarly, there may be circumstances where ensuringa successful reorganization requires that priority creditors receiveless than the full value of their claims upon approval of the plan.The prospects for reorganization may improve if priority creditorswill accept payment over time and if secured creditors willacquiesce when the terms of the secured debt are modified overtime. If these creditors are not included in the plan and entitledto vote on proposals affecting their rights, modification of thoserights cannot be achieved.

B

C

D

E

(ii) Classes of secured and priority creditors

B

C

D

E

(ii) Classes of secured and priority creditors

36. Recognizing the need for secured and priority creditors toparticipate, a second approach provides for these creditors to voteas classes separate from unsecured creditors on a plan thatwould modify or affect the terms of their claims, or to otherwiseFconsent to be bound by the plan. Adopting such an approachprovides a minimum safeguard for the adequate protection ofthese creditors and recognizes that the respective rights andinterests of secured and priority creditors differ from those ofunsecured creditors. In many cases, however, the rights ofGsecured and priority creditors will differ from each other and itmay not be feasible to require all secured creditors or all prioritycreditors to vote in a single class. In such cases, some lawsprovide that each secured creditor with separate rights toencumbered assets forms a class of its own. Those laws alsoprovide that, where secured creditors do vote as a class (e.g.Hwhere there are multiple holders of bonds that are secured by H

the same assets), the requisite majority of a class of securedcreditors would generally be the same as that required forapproval by unsecured creditors, although there are examples oflaws that require different majorities depending upon the mannerin which secured creditors rights are to be affected by the plan(e.g. one law provides that a three-quarter majority is requiredwhere the maturity date is to be extended and a four-fifthsmajority where the rights are to be otherwise impaired). Similarly,each rank of priority claims would be a separate class under thoselaws.

xxx xxx xxx

(iii) Where secured creditors are not fully secured

38. To the extent that the value of the encumbered asset willnot satisfy the full amount of the secured creditor’s claim, anumber of insolvency laws provide that those secured creditorsshould vote with ordinary unsecured creditors in respect of theunsatisfied portion of the claim. This may raise difficult questionsof valuation in order to determine whether, and to what extent,a secured creditor is in fact secured. For example, where threecreditors hold security interests over the same asset, the valueof that asset may only support the claim first in priority and partof the second in priority. The second creditor therefore may havea right to vote only in respect of the unsecured portion of its claim,while the third creditor will be totally unsecured. The valuationof the asset is therefore crucial to determining the extent to whichthese secured creditors are secured and whether or not they areentitled to vote as unsecured creditors with respect to any portionof their claim.

39. In determining which approach should be taken to this issue,it will be important to assess the effect of the desired approachupon the availability and cost of secured financing and to provideas much certainty and predictability as possible, balancing thisagainst the objectives of insolvency law and the benefits to aneconomy of successful reorganization.”

The BLRC Report, 2015 is of great help in understanding whatis meant by respecting the rights of all creditors equally.Paragraph 3.4.2 of the said report states:

AB

C

D

E

F

G

H

A“3.4.2 Principles driving the design

The Committee chose the following principles to design the newinsolvency and bankruptcy resolution framework:

IV. The Code will ensure a collective process.

9. The law must ensure that all key stakeholders will participateto collectively assess viability. The law must ensure that allcreditors who have the capability and the willingness to restructuretheir liabilities must be part of the negotiation process. Theliabilities of all creditors who are not part of the negotiationprocess must also be met in any negotiated solution.

B

C

V. The Code will respect the rights of all creditors equally.

10. The law must be impartial to the type of creditor in countingtheir weight in the vote on the final solution in resolvinginsolvency.

VI. The Code must ensure that, when the negotiations fail toDestablish viability, the outcome of bankruptcy must be binding.

11. The law must order the liquidation of an enterprise whichhas been found unviable. This outcome of the negotiations shouldbe protected against all appeals other than for very exceptionalcases.E

VII. The Code must ensure clarity of priority, and that the rightsof all stakeholders are upheld in resolving bankruptcy.

12. The law must clearly lay out the priority of distributions inbankruptcy to all stakeholders. The priority must be designed soFas to incentivise all stakeholders to participate in the cycle ofbuilding enterprises with confidence.

13. While the law must incentivise collective action in resolvingbankruptcy, there must be a greater flexibility to allow individualaction in resolution and recovery during bankruptcy comparedwith the phase of insolvency resolution.”

G

49. That equitable treatment of creditors is equitable treatmentonly within the same class is echoed in American Jurisprudence, 2d,Volume 9 (hereinafter referred to as “American Jurisprudence”) asHfollows:

Ҥ 6. Distribution

Equality of distribution is the theme of a bankruptcy act and aprime bankruptcy policy. The bankruptcy system is designed todistribute an estate as equally as possible among similarly situatedcreditors. Thus, creditors of equal status must be treated equallyand equitably.

One of the conditions placed upon the debtor’s use of theBankruptcy Code to obtain a fresh start is that the debtor treatall creditors fairly.

The bankruptcy process is the process by which a res, underthe constructive possession of the bankruptcy court, isadministered for the purpose of allowing, disallowing, organizing,and prioritizing claims of creditors in, to, and upon the res.Although the central policy of the Bankruptcy Code is equality of distribution among all creditors, exceptions are made bygranting priority to certain claims and subordinating others.Pursuant to the central policy, creditors of equal priority shouldreceive a pro rata share of the debtor’s property; thus, whenthere is not enough to go around, the bankruptcy judge mustestablish priorities and apportion assets among creditors with thesame priority.”

Shri Sibal, however, relied upon the following statements inAmerican Jurisprudence, which read as follows:

“Chapter 11 reorganization, specifically, has been called acollective remedy, designed to find the optimum solution for allparties connected with a business – not solely for the businessitself and not solely for its creditors.

xxx xxx xxx

Protecting creditors in general is an important objective as isprotecting creditors from each other.”

There is no doubt that even under our Code, reorganisation is acollective remedy designed to find an optimum solution for all partiesconnected with a business in the manner provided by the Code.Protecting creditors in general is, no doubt, an important objective - theobservation that protecting creditors from each other is also important, A

B

C

D

E

F

G

H

[2019] 16 S.C.R.

Awhich must be read with footnote 7 in the American Jurisprudence,which reads as under:

“In re First Central Financial Corp., 377 F.3d 209 (2d Cir. 2004)

The Bankruptcy Code generally does not imbue creditors withBgreater rights in a bankruptcy proceeding than they would enjoyunder otherwise applicable non-bankruptcy law unless it is toserve some bankruptcy purpose. In re Vermont Elec. Generation& Transmission Co-op., Inc., 240 B.R. 476 (Bankr. D. Vt.1999)”

C

A reading of this footnote will show that what is meant byprotecting creditors from each other is only that a Bankruptcy Codeshould not be read so as to imbue creditors with greater rights in abankruptcy proceeding than they would enjoy under the general law,unless it is to serve some bankruptcy purpose.

D

50. The importance of valuing security interests separately frominterests of creditors who do not have security is well set out in theIMF paper on Development of Standards for Security Interest byPascale De Boeck and Thomas Laryea, Counsel, IMF LegalDepartment. The learned authors state:E

“I. VALUE OF SECURITY INTERESTS

In developing standards for the legal framework of securityinterests, it is important to recognize that security interests servediscernable economic goals. Security interests reduce credit riskFby increasing the creditor’s likelihood to be repaid, not only whenpayment is due, but also in the event of a default by its debtor.This increased likelihood of repayment produces wider economicbenefits. First, the availability of credit is enhanced; borrowersobtain credit in cases where they would have otherwise failedGabsent a security interest. Second, credit is also made availableon better terms involving, for instance, lower interest rates andlonger maturities. The relative cost of secured credit under thatof unsecured credit reflects the commercial recognition of theadvantages of secured credit in connection with the recovery ofHthe debt.

H

The efficiency of the legal framework for secured credit is acritical factor in the strengthening of financial systems. In theface of financial sector crises, an effective legal framework ofsecurity interests enables banks and other credit institutions tomitigate the deterioration of their claims, it also facilitatescorporate restructuring by providing tools to support interimfinancing. In the longer term, an effective framework for securityinterests fosters economic growth. Specifically, it supports accessto affordable credit, thereby facilitating the acquisition of goods.Further, it increases the capacity of enterprises to financeexpansion fueled by the supply of credit. Also, an effectiveframework for security interests can support the developmentof a sound banking system and promotion of capital marketsfounded on the efficient allocation of credit and effective andpredictable mechanisms for realizing credit claims.

xxx xxx xxx

III. General Principles

xxx xxx xxx

• Establish clear and predictable priority rules The issue of priorities between various security interest devicesand between various types of creditors is extremely complex,largely due to the myriad of possible competing interests.Whatever priority rules a legal framework establishes, they oughtto be clear, predictable and transparent. They need to allowcreditors to assess their position before creating a securityinterest and to enforce their rights in case of default in a timely,predictable and cost-efficient manner.

• Facilitate the enforcement of creditor rights Enforcement is a critical factor in the law and functioning ofsecured credit. A security interest is of little value to a creditorunless the creditor is able to enforce it in a predictable, efficientand timely manner vis-à-vis the debtor and third parties. Aneffective framework needs to allow quick and predictableenforcement both within and outside insolvency proceedings.”

AB

C

D

E

F

G

H

A51. Likewise the World Bank Report of 2015 titled Principles forEffective Insolvency and Creditor/Debtor Regimes states:

“Claims and Claims Resolution Procedures Treatment of Stakeholder Rights and Priorities B

C12.1 The rights of creditors and the priorities of claimsestablished prior to insolvency proceedings under commercial orother applicable laws should be upheld in an insolvency proceedingto preserve the legitimate expectations of creditors andencourage greater predictability in commercial relationships.CDeviations from this general rule should occur only wherenecessary to promote other compelling policies, such as thepolicy supporting reorganization, or to maximize the insolvencyestate’s value. Rules of priority should enable creditors to managecredit efficiently, consistent with the following additional principles:

D

C12.2 The priority of secured creditors in their collateral shouldbe upheld and, absent the secured creditor’s consent, its interestin the collateral should not be subordinated to other prioritiesgranted in the course of the insolvency proceeding. Distributionsto secured creditors should be made as promptly as possible.

E

C12.3 Following distributions to secured creditors from theircollateral and the payment of claims related to the costs andexpenses of administration, proceeds available for distributionshould be distributed pari passu to the remaining generalFunsecured creditors, unless there are compelling reasons to justifygiving priority status to a particular class of claims. Publicinterests generally should not be given precedence over privaterights. The number of priority classes should be kept to aminimum.

G

C12.4 Workers are a vital part of an enterprise, and carefulconsideration should be given to balancing the rights of employeeswith those of other creditors.”

However, Shri Sibal stated that this report should not be reliedHupon as an earlier World Bank Report of 2010, titled “A Global View of Business Insolvency Systems” (hereinafter referred to as the “2010Report”) had opined to the contrary.

52. Quite apart from the fact that the 2010 report is an earlierreport, which opined on the basis of the French system, that creditorsare divided into two separate classes without any further sub-classification and that the advantage of such system is that it avoidspotential conflict of interest among creditors in a particular class, thereport then goes on to state:

“In some cases, classification makes it easier to treat the claimsof major creditors, who may be persuaded to opt to receive adifferent treatment from the general class of unsecured creditors,where such treatment is necessary to render the plan feasible.In such cases, the treatment for these major creditors is generallyon less favorable terms than other, similarly situated creditors.Finally, classification may be a useful means of overriding thevote of a class of creditors that votes against the plan wherethe class is otherwise treated in a fair and equitable manner.[4]”

Even according to this report, therefore, a “cramdown” ondissentient creditors would pass muster under an insolvency law if suchcreditors will receive, under a resolution plan, an amount at least equalto what such creditors would receive in a liquidation proceeding being“liquidation value”.

53. Also, Philip R. Wood’s book titled “Principles of InternationalInsolvency” states:

“Secured creditors are super-priority creditors on insolvency.Security must stand up on insolvency which is when it is neededmost. Security which is valid between the parties but not asagainst the creditors of the debtor is futile. Bankruptcy law whichfreeze or delay or weaken or de-prioritise security on insolvency 4 This override, which has come to be known as a “cramdown” based on its effect,allows the court to conclude that a rejecting class should be compelled to accept theplan where the class is paid in strict accordance with the relative priority of creditorclaims and will receive under the plan a distribution in an amount equal to or greaterthan such creditors would receive in a liquidation proceeding. The rationale is thatthese creditors cannot claim “foul” if their recovery is at least as good as they wouldhave received if they had prevailed in having the enterprise liquidated.

A

B

C

D

E

F

G

H

A

destroy what the law created. Hence the end is more importantthan the beginning.

Rationale of security - The main purposes and policies ofsecurity are: protection of creditors on insolvency; the limitationof cascade or domino insolvencies; security encourages capital,Be.g. enterprise finance; security reduces the cost of credit, e.g.margin collateral in markets; he who pays for the asset shouldhave the right to the asset; security encourages the private rescuesince the bank feels safer; security is defensive control, especiallyin the case of project finance; security is a fair exchange forthe credit.

C

Main Objections to security The objections to security aremainly historical, but they resurrect and live on. The hostility maystem from: debtor-protection stirred by the ancient hostility tousurers and money-lending and now expressed in consumerDprotection statutes; the prevention of false wealth, i.e. the debtorhas many possessions but few assets – this is usually met by arequirement for possession (inefficient because not public) orpublic registration; unsecured creditors get less on insolvency andthis is seen as a violation of bankruptcy equality, although moreoften it is motivated by desire to protect unpaid employees andEsmall creditors; security disturbs the safety of commercialtransactions because of priority risks, e.g. the purchaser of goods;the secured creditor can disrupt a rescue by selling an essentialasset.”

54. Indeed, if an “equality for all” approach recognising the rightsFof different classes of creditors as part of an insolvency resolutionprocess is adopted, secured financial creditors will, in many cases, beincentivised to vote for liquidation rather than resolution, as they wouldhave better rights if the corporate debtor was to be liquidated ratherthan a resolution plan being approved. This would defeat the entireGobjective of the Code which is to first ensure that resolution ofdistressed assets takes place and only if the same is not possible shouldliquidation follow.

55. Financial creditors are in the business of lending money. TheRBI report on Trend and Progress of Banking in India, 2017-2018Hreflects that the net interest margin of Indian banks for the financial

year 2017-2018 is averaged at 2.5%. Likewise, the global trend for netinterest margin was at 3.3% for banks in the USA and 1.6% for banksin the UK in the year 2016, as per the data published on the websiteof the bank. Thus, it is clear that financial creditors earn profit byearning interest on money lent with low margins, generally beingbetween 1 to 4%. Also, financial creditors are capital providers forcompanies, who in turn are able to purchase assets and provide aworking capital to enable such companies to run their business operation,whereas operational creditors are beneficiaries of amounts lent byfinancial creditors which are then used as working capital, and oftenget paid for goods and services provided by them to the corporate debtor,out of such working capital. On the other hand, market research carriedout by India Brand Equity Foundation, a trust established by the Ministryof Commerce and Industry, as regards the Oil and Gas sector, has statedthat the business risk of operational creditors who operate with higherprofit margins and shorter cyclical repayments must needs be higher.Also, operational creditors have an immediate exit option, by stoppingsupply to the corporate debtor, once corporate debtors start defaultingin payment. Financial creditors may exit on their long-term loans, eitherupon repayment of the full amount or upon default, by recalling the entireloan facility and/or enforcing the security interest which is a timeconsuming and lengthy process which usually involves litigation. Financialcreditors are also part of a regulated banking system which involvesnot merely declaring defaulters as non-performing assets but alsoinvolves restructuring such loans which often results in foregoing unpaidamounts of interest either wholly or partially. All these differencesbetween financial and operational creditors have been reflected, albeitdifferently, in the judgment of Swiss Ribbons (supra). Thus, this Courtin dealing with some of the differences has held:

“50. According to us, it is clear that most financial creditors,particularly banks and financial institutions, are secured creditorswhereas most operational creditors are unsecured, payments forgoods and services as well as payments to workers not beingsecured by mortgaged documents and the like. The distinctionbetween secured and unsecured creditors is a distinction whichhas obtained since the earliest of the Companies Acts both inthe United Kingdom and in this country. Apart from the above,the nature of loan agreements with financial creditors is different AB

C

D

E

F

G

H

A

AB

C

D

E

F

G

H

A

from contracts with operational creditors for supplying goods andservices. Financial creditors generally lend finance on a term loanor for working capital that enables the corporate debtor to eitherset up and/or operate its business. On the other hand, contractswith operational creditors are relatable to supply of goods andservices in the operation of business. Financial contracts generallyinvolve large sums of money. By way of contrast, operationalcontracts have dues whose quantum is generally less. In therunning of a business, operational creditors can be many asopposed to financial creditors, who lend finance for the set-upor working of business. Also, financial creditors have specifiedrepayment schedules, and defaults entitle financial creditors torecall a loan in totality. Contracts with operational creditors donot have any such stipulations. Also, the forum in which disputeresolution takes place is completely different. Contracts withoperational creditors can and do have arbitration clauses wheredispute resolution is done privately. Operational debts also tendto be recurring in nature and the possibility of genuine disputesin case of operational debts is much higher when compared tofinancial debts. A simple example will suffice. Goods that aresupplied may be substandard. Services that are provided may besubstandard. Goods may not have been supplied at all. All thesequa operational debts are matters to be proved in arbitration orin the courts of law. On the other hand, financial debts made tobanks and financial institutions are well documented and defaultsmade are easily verifiable.

B

C

D

E

51. Most importantly, financial creditors are, from the verybeginning, involved with assessing the viability of the corporatedebtor. They can, and therefore do, engage in restructuring ofthe loan as well as reorganisation of the corporate debtor’sbusiness when there is financial stress, which are thingsoperational creditors do not and cannot do. Thus, preserving thecorporate debtor as a going concern, while ensuring maximumrecovery for all creditors being the objective of the Code, financialcreditors are clearly different from operational creditors andtherefore, there is obviously an intelligible differentia between thetwo which has a direct relation to the objects sought to beachieved by the Code.

F

G

Hxxx xxx xxx

75. Since the financial creditors are in the business ofmoneylending, banks and financial institutions are best equippedto assess viability and feasibility of the business of the corporatedebtor. Even at the time of granting loans, these banks andfinancial institutions undertake a detailed market study whichincludes a techno-economic valuation report, evaluation ofbusiness, financial projection, etc. Since this detailed study hasalready been undertaken before sanctioning a loan, and sincefinancial creditors have trained employees to assess viability andfeasibility, they are in a good position to evaluate the contents ofa resolution plan. On the other hand, operational creditors, whoprovide goods and services, are involved only in recoveringamounts that are paid for such goods and services, and aretypically unable to assess viability and feasibility of business. TheBLRC Report, already quoted above, makes this abundantlyclear.

xxx xxx xxx

76. Quite apart from this, the United Nations Commission onInternational Trade Law, in its Legislative Guide on InsolvencyLaw (the UNCITRAL Guidelines) recognises the importance ofensuring equitable treatment to similarly placed creditors and statesas follows:

“Ensuring equitable treatment of similarly situated creditors

7. The objective of equitable treatment is based on the notionthat, in collective proceedings, creditors with similar legal rightsshould be treated fairly, receiving a distribution on their claim inaccordance with their relative ranking and interests. This keyobjective recognises that all creditors do not need to be treatedidentically, but in a manner that reflects the different bargainsthey have struck with the debtor. This is less relevant as a definingfactor where there is no specific debt contract with the debtor,such as in the case of damage claimants (e.g. for environmentaldamage) and tax authorities. Even though the principle ofequitable treatment may be modified by social policy on prioritiesand give way to the prerogatives pertaining to holders of claims AB

C

D

E

F

G

H

A

or interests that arise, for example, by operation of law, it retainsits significance by UNCITRAL Legislative Guide on InsolvencyLaw ensuring that the priority accorded to the claims of a similarclass affects all members of the class in the same manner. Thepolicy of equitable treatment permeates many aspects of aninsolvency law, including the application of the stay or suspension,provisions to set aside acts and transactions and recapture valuefor the insolvency estate, classification of claims, votingprocedures in reorganisation and distribution mechanisms. Aninsolvency law should address problems of fraud and favouritismthat may arise in cases of financial distress by providing, forexample, that acts and transactions detrimental to equitabletreatment of creditors can be avoided.”

B

C

77. NCLAT has, while looking into viability and feasibility ofresolution plans that are approved by the Committee of Creditors,always gone into whether operational creditors are given roughlyDthe same treatment as financial creditors, and if they are not,such plans are either rejected or modified so that the operationalcreditors’ rights are safeguarded. It may be seen that a resolutionplan cannot pass muster under Section 30(2)(b) read with Section31 unless a minimum payment is made to operational creditors,Ebeing not less than liquidation value. Further, on 5-10-2018,Regulation 38 has been amended. Prior to the amendment,Regulation 38 read as follows:

D

“38. Mandatory contents of the resolution plan.—(1) Aresolution plan shall identify specific sources of funds that willbe used to pay the—

F

(a) insolvency resolution process costs and provide that theinsolvency resolution process costs, to the extent unpaid,will be paid in priority to any other creditor; (b) liquidation value due to operational creditors and providefor such payment in priority to any financial creditorwhich shall in any event be made before the expiry ofthirty days after the approval of a resolution plan by theadjudicating authority; and G

(c) liquidation value due to dissenting financial creditors andHprovide that such payment is made before any recoveries are made by the financial creditors who votedin favour of the resolution plan.”

Post amendment, Regulation 38 reads as follows:

“38. Mandatory contents of the resolution plan.—(1) Theamount due to the operational creditors under a resolution planshall be given priority in payment over financial creditors.

(1-A) A resolution plan shall include a statement as to how ithas dealt with the interests of all stakeholders, including financialcreditors and operational creditors, of the corporate debtor.”

The aforesaid Regulation further strengthens the rights ofoperational creditors by statutorily incorporating the principle offair and equitable dealing of operational creditors’ rights, togetherwith priority in payment over financial creditors.”

56. 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 clearbeyond any doubt that equitable treatment is only of similarly situatedcreditors. This being so, the observation in paragraph 77 cannot be readto mean that financial and operational creditors must be paid the sameamounts in any resolution plan before it can pass muster. On thecontrary, paragraph 77 itself makes it clear that there is a difference inpayment of the debts of financial and operational creditors, operationalcreditors having to receive a minimum payment, being not less thanliquidation value, which does not apply to financial creditors. Theamended Regulation 38 set out in paragraph 77 again does not lead tothe conclusion that financial and operational creditors, or secured andunsecured creditors, must be paid the same amounts, percentage wise,under the resolution plan before it can pass muster. Fair and equitabledealing of operational creditors’ rights under the said Regulation involvesthe resolution plan stating as to how it has dealt with the interests ofoperational creditors, which is not the same thing as saying that theymust be paid the same amount of their debt proportionately. Also, thefact that the operational creditors are given priority in payment over allfinancial creditors does not lead to the conclusion that such paymentmust necessarily be the same recovery percentage as financial creditors.

A

B

C

D

E

F

G

H

ASo long as the provisions of the Code and the Regulations have beenmet, it is the commercial wisdom of the requisite majority of theCommittee of Creditors which is to negotiate and accept a resolutionplan, which may involve differential payment to different classes ofcreditors, together with negotiating with a prospective resolutionBapplicant for better or different terms which may also involve differencesin distribution of amounts between different classes of creditors.

57. Indeed, by vesting the Committee of Creditors with thediscretion of accepting resolution plans only with financial creditors,operational creditors having no vote, the Code itself differentiatesbetween the two types of creditors for the reasons given above. Further,Cas has been reflected in Swiss Ribbons (supra), most financial creditorsare secured creditors, whose security interests must be protected inorder that they do not go ahead and realise their security in legalproceedings, but instead are incentivised to act within the frameworkof the Code as persons who will resolve stressed assets and bring aDcorporate debtor back to its feet. Shri Sibal’s argument that theexpression “secured creditor” does not find mention in Chapter II ofthe Code, which deals with the resolution process, and is only found inChapter III, which deals with liquidation, is for the reason that securedcreditors as a class are subsumed in the class of financial creditors, as

has been held in Swiss Ribbons (supra). Indeed, Regulation 13(1) ofEthe 2016 Regulations mandates that when the resolution professionalverifies claims, the security interest of secured creditors is also lookedat and gets taken care of. Similarly, Regulation 36(2)(d) when itprovides for a list of creditors and the amounts claimed by them in theinformation memorandum (which is to be submitted to prospectiveFresolution applicants), also provides for the amount of claims admittedand security interest in respect of such claims. Under Regulation 39(4),the compliance certificate of the resolution professional as to the CIRPbeing successful is contained in Form H to the Regulations. Thisstatutory form, in paragraphs 6 and 7, states as under:

G“6. The Resolution Plan includes a statement under regulation38(1A) of the CIRP Regulations as to how it has dealt with theinterests of all stakeholders in compliance with the Code andregulations made thereunder.

7. The amounts provided for the stakeholders under theHResolution Plan is as under:

(Amount in Rs. Lakh)

Quite clearly, secured and unsecured financial creditors aredifferentiated when it comes to amounts to be paid under a resolutionplan, together with what dissenting secured or unsecured financialcreditors are to be paid. And, most importantly, operational creditorsare separately viewed from these secured and unsecured financialcreditors in S.No.5 of paragraph 7 of statutory Form H. Thus, it canbe seen that the Code and the Regulations, read as a whole, togetherwith the observations of expert bodies and this Court’s judgment, alllead to the conclusion that the equality principle cannot be stretched totreating unequals equally, as that will destroy the very objective of theCode - to resolve stressed assets. Equitable treatment is to be accordedto each creditor depending upon the class to which it belongs: securedor unsecured, financial or operational.

58. However, Shri Sibal relied strongly upon a judgment of thisCourt being Mihir R. Mafatlal v. Mafatlal Industries Ltd. (1997) 1SCC 579, and in particular paragraph 28 thereof, which stated as follows:

“28. …On a conjoint reading of the relevant provisions of Sections391 and 393 it becomes at once clear that the Company Courtwhich is called upon to sanction such a scheme has not merelyto go by the ipse dixit of the majority of the shareholders orcreditors or their respective classes who might have voted infavour of the scheme by requisite majority but the Court has toconsider the pros and cons of the scheme with a view to findingout whether the scheme is fair, just and reasonable and is not

A

B

C

D

E

F

G

H

A

A

B

C

D

E

F

G

H

A

Acontrary to any provisions of law and it does not violate any publicpolicy. This is implicit in the very concept of compromise orarrangement which is required to receive the imprimatur of acourt of law. No court of law would ever countenance anyscheme of compromise or arrangement arrived at between theparties and which might be supported by the requisite majority ifBthe Court finds that it is an unconscionable or an illegal schemeor is otherwise unfair or unjust to the class of shareholders orcreditors for whom it is meant. Consequently it cannot be saidthat a Company Court before whom an application is moved forsanctioning such a scheme which might have got the requisiteCmajority support of the creditors or members or any class of themfor whom the scheme is mooted by the company concerned, hasto act merely as a rubber stamp and must almost automaticallyput its seal of approval on such a scheme. It is trite to say thatonce the scheme gets sanctioned by the Court it would bind eventhe dissenting minority shareholders or creditors. Therefore, theDfairness of the scheme qua them also has to be kept in view bythe Company Court while putting its seal of approval on thescheme concerned placed for its sanction. It is, of course, truethat so far as the Company Court is concerned as per thestatutory provisions of Sections 391 and 393 of the Act theEquestion of voidability of the scheme will have to be judgedsubject to the rider that a scheme sanctioned by majority willremain binding to a dissenting minority of creditors or members,as the case may be, even though they have not consented to sucha scheme and to that extent absence of their consent will haveno effect on the scheme. It can be postulated that even in caseFof such a scheme of compromise and arrangement put up forsanction of a Company Court it will have to be seen whetherthe proposed scheme is lawful and just and fair to the whole classof creditors or members including the dissenting minority to whomit is offered for approval and which has been approved by suchGclass of persons with requisite majority vote.”

B

C

D

E

G

The very next paragraph, however, states as follows:

“29. However further question remains whether the Court hasjurisdiction like an appellate authority to minutely scrutinise thescheme and to arrive at an independent conclusion whether thescheme should be permitted to go through or not when the H

majority of the creditors or members or their respective classeshave approved the scheme as required by Section 391 sub-section (2). On this aspect the nature of compromise orarrangement between the company and the creditors andmembers has to be kept in view. It is the commercial wisdom ofthe parties to the scheme who have taken an informed decisionabout the usefulness and propriety of the scheme by supportingit by the requisite majority vote that has to be kept in view bythe Court. The Court certainly would not act as a court of appealand sit in judgment over the informed view of the partiesconcerned to the compromise as the same would be in the realmof corporate and commercial wisdom of the parties concerned.The Court has neither the expertise nor the jurisdiction to delvedeep into the commercial wisdom exercised by the creditors andmembers of the company who have ratified the Scheme by therequisite majority. Consequently the Company Court’s jurisdictionto that extent is peripheral and supervisory and not appellate. TheCourt acts like an umpire in a game of cricket who has to seethat both the teams play their game according to the rules anddo not overstep the limits. But subject to that how best the gameis to be played is left to the players and not to the umpire.”

In Mihir Mafatlal (supra), the Court was dealing with schemesof amalgamation under Section 391 of the Companies Act, 1956. UnderSection 392 of the said Act, the High Court is vested with a supervisoryjurisdiction, which includes the power to give directions and makemodifications in such schemes, as it may consider necessary, for theproper working of the said Schemes. This power in Section 392 isconspicuous by its absence when it comes to the Adjudicating Authorityunder the Code, whose jurisdiction is circumscribed by Section 30(2).It is the Committee of Creditors, under Section 30(4) read withRegulation 39(3), that is vested with the power to approve resolutionplans and make modifications therein as the Committee deems fit. It isthis vital difference between the jurisdiction of the High Court underSection 392 of the Companies Act, 1956 and the jurisdiction of theAdjudicating Authority under the Code that must be kept in mind whenthe Adjudicating Authority is to decide on whether a resolution planpasses muster under the Code. When this distinction is kept in mind, itis clear that there is no residual jurisdiction not to approve a resolutionplan on the ground that it is unfair or unjust to a class of creditors, so AB

C

D

E

F

GH

Along as the interest of each class has been looked into and taken careof. It is important to note that even under Sections 391 and 392 of theCompanies Act, 1956, ultimately it is the commercial wisdom of theparties to the scheme, reflected in the 75% majority vote, which thenbinds all shareholders and creditors. Even under Sections 391 and 392,the High Court cannot act as a court of appeal and sit in judgment overBsuch commercial wisdom.

The constitution of a sub-committee by the Committee ofCreditors

59. A large part of Shri Sibal’s submission was centered aroundCthe fact that the Committee of Creditors delegated its functions to asub-committee, which delegation is impermissible. As a result of thisdelegation, the sub-committee secretly made negotiations withArcelorMittal, which secret negotiations then produced a whollyinequitable result in that Standard Chartered Bank, though a financialcreditor, was only paid 1.74% of its admitted claim of INR 3487 croresDas opposed to other financial creditors who were paid 74.8% of whatwas claimed by them.

60. Under Section 21(8) of the Code, all decisions by theCommittee of Creditors can be taken by a 51% majority vote, unless,a higher percentage is required under other specific provisions of theECode.

61. In Pradyat Kumar Bhose v. The Hon’ble the ChiefJustice of Calcutta High Court (1955) 2 SCR 1331 at page 1345-1346, this Court, when dealing with the Chief Justice of the High Courtof Calcutta’s administrative powers held:F

“The further subordinate objections that have been raised remainto be considered. The first objection that has been urged is thateven if the Chief Justice had the power to dismiss, he was not,in exercise of that power, competent to delegate to another Judgethe enquiry into the charges but should have made the enquiryGhimself. This contention proceeds on a misapprehension of thenature of the power. As pointed out in Barnard v. National DockLabour Board [(1953) 2 QB 18, 40] at p. 40, it is true that “nojudicial tribunal can delegate its functions unless it is enabled todo so expressly or by necessary implication”. But the exerciseHof the power to appoint or dismiss an officer is the exercise not

of a judicial power but of an administrative power. It isnonetheless so, by reason of the fact that an opportunity to showcause and an enquiry simulating judicial standards have toprecede the exercise thereof. It is well-recognised that a statutoryfunctionary exercising such a power cannot be said to havedelegated his functions merely by deputing a responsible andcompetent official to enquire and report. That is the ordinary modeof exercise of any administrative power. What cannot bedelegated except where the law specifically so provides — isthe ultimate responsibility for the exercise of such power. Aspointed out by the House of Lords in Board of Education v.Rice [(1911) AC 179, 182] , a functionary who has to decide anadministrative matter, of the nature involved in this case, canobtain the material on which he is to act in such manner as maybe feasible and convenient, provided only the affected party “hasa fair opportunity to correct or contradict any relevant andprejudicial material”. The following passage from the speech ofLord Chancellor in Local Government Board v. Arlidge [(1915)AC 120, 133] is apposite and instructive:

“My Lords, I concur in this view of the position of anadministrative body to which the decision of a question indispute between parties has been entrusted. The result of itsinquiry must, as I have said, be taken, in the absence ofdirections in the statute to the contrary, to be intended to bereached by its ordinary procedure. In the case of the LocalGovernment Board it is not doubtful what this procedure is.The Minister at the head of the Board is directly responsibleto Parliament like other Ministers. He is responsible not onlyfor what he himself does but for all that is done in hisdepartment. The volume of work entrusted to him is verygreat and he cannot do the great bulk of it himself. He isexpected to obtain his materials vicariously through hisofficials, and he has discharged his duty if he sees that theyobtain these materials for him properly. To try to extend hisduty beyond this and to insist that he and other members ofthe Board should do everything personally would be to impairhis efficiency. Unlike a Judge in a Court he is not only atliberty but is compelled to rely on the assistance of his staff.”

ABC

D

E

F

G

H

382SUPREME COURT REPORTS

AIn view of the above clear statement of the law the objection tothe validity of the dismissal on the ground that the delegation ofthe enquiry amounts to the delegation of the power itself iswithout any substance and must be rejected.”

Likewise, in High Court of Judicature at Bombay throughBits Registrar v. Shirishkumar Rangrao Patil & Anr. (1997) 6 SCC339, this Court, in dealing with the constitution of various committeesfor the administration of the High Court, when dealing with question ofdelegation held:

“10. It would thus be settled law that the control of theCsubordinate judiciary under Article 235 is vested in the HighCourt. After the appointment of the judicial officers by theGovernor, the power to transfer, maintain discipline and keepcontrol over them vests in the High Court. The Chief Justice ofthe High Court is first among the Judges of the High Court. Theaction taken is by the High Court and not by the Chief Justice inDhis individual capacity, nor by the Committee of Judges. For theconvenient transaction of administrative business in the Court,the Full Court of the Judges of the High Court generally passesa resolution authorising the Chief Justice to constitute variouscommittees including the committee to deal with disciplinaryEmatters pertaining to the subordinate judiciary or the ministerialstaff working therein. Article 235, therefore, relates to the powerof taking a decision by the High Court against a member of thesubordinate judiciary. Such a decision either to hold an enquiryinto the conduct of a judicial officer, subordinate or higherFjudiciary, or to have the enquiry conducted through a District orAdditional District Judge etc. and to consider the report of theenquiry officer for taking further action is of the High Court.Equally, the decision to consider the report of the enquiry officerand to take follow-up action and to make appropriaterecommendation to the Disciplinary Committee or to theGGovernor, is entirely of the High Court which acts through theCommittee of the Judges authorised by the Full Court. Once aresolution is passed by the Full Court of the High Court, there isno further necessity to refer the matter again to the Full Courtwhile taking such procedural steps relating to control of theHsubordinate judiciary.”

62. We find, that when it comes to the exercise of the Committeeof Creditors’ powers on questions which have a vital bearing on therunning of the business of the corporate debtor, Section 28(1)(h) providesthat though these powers are administrative in nature, they shall not bedelegated to any other person, meaning thereby, that the Committee ofCreditors alone must take the decisions mentioned in Section 28 andnot any person other than such Committee. When it comes to approvinga resolution plan under Section 30(4), there is no doubt whatsoever thatthis power also cannot be delegated to any other body as it is theCommittee of Creditors alone that has been vested with this importantbusiness decision which it must take by itself. However, this does notmean that sub-committees cannot be appointed for the purpose ofnegotiating with resolution applicants, or for the purpose of performingother ministerial or administrative acts, provided such acts are in theultimate analysis approved and ratified by the Committee of Creditors.We find, having gone through the minutes of all the important creditors’meetings that were held, that every single administrative decision quaapproving and administering the resolution plan submitted byArcelorMittal was in fact done by the requisite majority of theCommittee of Creditors itself, the sub-committee having been used onlyfor purposes of initiating proceedings and negotiating with ArcelorMittal,which ultimately culminated in the resolution plan as finally negotiated,being passed by the requisite majority of creditors on 23.10.2018. Inpoint of fact, Standard Chartered Bank voted in favour of the constitutionof a sub-committee on the 12[th] committee of creditors meeting of02.05.2018, as also, in favour of decisions of the Committee of Creditorsfinalizing drafts of sub-committees on eligibility of resolution applicantsat the 13[th] Committee of Creditors meeting on 05.05.2018. Also, as amatter of fact, on 31.05.2018, at the 16[th] Committee of Creditorsmeeting, a request was made by Standard Chartered Bank to be amember of the sub-committee, which request was later withdrawn. Wealso find that in the authorisation to the sub-committee to negotiate withArcelorMittal, mooted at the 20[th] Committee of Creditors meeting on19.10.2018, a request was made by Standard Chartered Bank forinclusion in the said sub-committee. However, Standard Chartered Bankdid not agree to put the reconstitution of the sub-committee to vote bythe Committee of Creditors. Given these facts, we find, therefore, thatit is only when Standard Chartered Bank found that things were goingagainst it that it started raising objections on the technical plea that sub- AB

C

DE

F

G

H

Acommittees cannot be constituted under the Code. This is not abonafide plea. For all these reasons, this objection of StandardChartered Bank is also rejected.

Extinguishment of Personal Guarantees and UndecidedClaimsB

63. Shri Gopal Subramanium and Shri Rakesh Dwivedi have alsoappealed against the extinguishment of the rights of creditors againstguarantees that were extended by the promoters/promoter group of thecorporate debtor. According to them, this was done by a side wind bythe Appellate Tribunal without any reasons for the same.C64. Shri Prashant Ruia a promoter/director of the corporatedebtor in his personal guarantee dated 28.09.2013, specifically statedas follows:

“7. The obligations of the Guarantor under this Guarantee shallnot be affected by any act, omission, matter or thing that, butDfor this Guarantee, would reduce, release or prejudice any of itsobligations under this Guarantee (without limitation and whetheror not known to it or any Secured Party) including :

xxx xxx xxx

(g) any insolvency or similar proceedings.”E

Also, under the caption “terms of settlement”, the final resolutionplan dated 02.04.2018, as approved on 23.10.2018, specifically provided:

“Financial Creditors:

Pursuant to the approval of this Resolution Plan by theFAdjudicating Authority, each of the Financial Creditors shall bedeemed to have agreed and acknowledged the following terms:

— The payment to the Financial creditors in accordance with thisResolution Plan shall be treated as full and final payment of alloutstanding dues of the Corporate Debtor to each of the FinancialGCreditors as of the Effective Date, and all agreements andarrangements entered into by or in favour of each of the FinancialCreditors, including but not limited to loan agreements and securityagreements (other than corporate or personal guaranteesprovided in relation to the Corporate Debtor by the ExistingHPromoter Group or their respective affiliates) shall be deemed to have been (i) assigned / novated to the Resolution applicant,or any Person nominated by the Resolution applicant, with effectfrom the effective Date, with no rights subsisting or accruing tothe Financial Creditors for the period prior to such assignmentor novation; and (ii) to the extent not legally capable of assignedor novated- terminated with effect from the effective Date, withno rights accruing or subsisting to the Financial Creditors for theperiod prior to termination.

��In relation to the loan and financial assistance provided tothe Corporate Debtor; each of the Financial Creditors, as the casemaybe, shall:

- Assign/ novate all security given (including but not limited toEncumbrance over assets of the Corporate Debtor, pledge ofshares of the Corporate Debtor (other than corporate guaranteesand personal guarantees) related in any manner to the CorporateDebtor) to the Resolution Applicant and /or its ConnectedPersons, and /or banks or financial institutions designated by theResolution Applicant in this regard, pursuant to the AcquisitionStructure, with effect from the Effective Date;

- Issue such letters and communications, and take such otheractions, as may be required or deemed necessary for the release,assignment or novation of (i) the Encumbrance over the assetsof the Corporate Debtor; and (ii) the pledge over the shares ofthe Corporate Debtor; within 5(five) Business Days from theEffective Date; and

- Be deemed to have waived all claims and dues (includinginterest and penalty, if any) from the Corporate Debtor arisingon and from the insolvency Commencement Date, until theeffective Date.”

65. Shri Rohatgi, learned senior advocate appearing on behalfof Shri Prashant Ruia, also pointed out Section XIII (1)(g) of theresolution plan dated 23.10.18, in which it is stated as follows:

“Upon the approval of the Resolution Plan by the AdjudicatingAuthority in relation to guarantees provided for and on behalfof, and in order to secure the financial assistance availed by theCorporate Debtor, which have been invoked prior to the Effective AB

C

D

E

F

G

H

ADate, claims of the guarantor on account of subrogation, if any,under any such guarantee shall be deemed to have been abated,released, discharged and extinguished.

It is hereby clarified that, the aforementioned clause shall notapply in any manner which may extinguish/affect the rights ofBthe Financial Creditors to enforce the corporate guarantees andpersonal guarantees issued for and on behalf of the CorporateDebtor by Existing Promoter Group or their respective affiliates,which guarantees shall continue to be retained by the FinancialCreditors and shall continue to be enforceable by them.”

C

We were also informed by the learned senior counsel that thepersonal guarantees of the promoter group have been invoked and legalproceedings in respect thereof are pending. It has been pointed out tous that Shri Prashant Ruia and other members of the promoter group,Dwho are guarantors, are not parties to the resolution plan submitted byArcelorMittal and hence, the resolution plan cannot bind them to takeaway rights of subrogation, which they may have if they are orderedto pay amounts guaranteed by them in the pending legal proceedings.

66. Section 31(1) of the Code makes it clear that once a resolutionEplan is approved by the Committee of Creditors it shall be binding onall stakeholders, including guarantors. This is for the reason that thisprovision ensures that the successful resolution applicant starts runningthe business of the corporate debtor on a fresh slate as it were. In StateBank of India v. V. Ramakrishnan, 2018 (9) SCALE 597, this Courtrelying upon Section 31 of the Code has held:F

“22. Section 31 of the Act was also strongly relied upon by theRespondents. This Section only states that once a ResolutionPlan, as approved by the Committee of Creditors, takes effect,it shall be binding on the corporate debtor as well as the guarantor.This is for the reason that otherwise, Under Section 133 of theGIndian Contract Act, 1872, any change made to the debt owedby the corporate debtor, without the surety’s consent, wouldrelieve the guarantor from payment. Section 31(1), in fact, makesit clear that the guarantor cannot escape payment as theResolution Plan, which has been approved, may well includeHprovisions as to payments to be made by such guarantor. This is

perhaps the reason that Annexure VI(e) to Form 6 contained inthe Rules and Regulation 36(2) referred to above, requireinformation as to personal guarantees that have been given inrelation to the debts of the corporate debtor. Far from supportingthe stand of the Respondents, it is clear that in point of fact,Section 31 is one more factor in favour of a personal guarantorhaving to pay for debts due without any moratorium applying tosave him.”

Following this judgment, it is difficult to accept Shri Rohatgi’sargument that that part of the resolution plan which states that the claimsof the guarantor on account of subrogation shall be extinguished, cannotbe applied to the guarantees furnished by the erstwhile directors of thecorporate debtor. So far as the present case is concerned, we hastento add that we are saying nothing which may affect the pending litigationon account of invocation of these guarantees. However, the NCLATjudgment being contrary to Section 31(1) of the Code and this Court’sjudgment in State Bank of India (supra), is set aside.

67. For the same reason, the impugned NCLAT judgment inholding that claims that may exist apart from those decided on meritsby the resolution professional and by the Adjudicating Authority/Appellate Tribunal can now be decided by an appropriate forum in termsof Section 60(6) of the Code, also militates against the rationale ofSection 31 of the Code. A successful resolution applicant cannotsuddenly be faced with “undecided” claims after the resolution plansubmitted by him has been accepted as this would amount to a hydrahead popping up which would throw into uncertainty amounts payableby a prospective resolution applicant who successfully take over thebusiness of the corporate debtor. All claims must be submitted to anddecided by the resolution professional so that a prospective resolutionapplicant knows exactly what has to be paid in order that it may thentake over and run the business of the corporate debtor. This thesuccessful resolution applicant does on a fresh slate, as has been pointedout by us hereinabove. For these reasons, the NCLAT judgment mustalso be set aside on this count.

Utilisation of profits of the corporate debtor during CIRPto pay off creditors

68. The RFP issued in terms of Section 25 of the Code andconsented to by ArcelorMittal and the Committee of Creditors had AB

C

D

EF

G

H

Aprovided that distribution of profits made during the corporate insolvencyprocess will not go towards payment of debts of any creditor – seeClause 7 of the first addendum to the RFP dated 08.02.2018. On thisshort ground, this part of the judgment of the NCLAT is also incorrect.

Constitutional Validity of Section 4 and 6 of the AmendingBAct, 2019

69. In Swiss Ribbons (supra) this Court was at pains to pointout, referring, inter alia, to various American decisions in paras 17 to24, that the legislature must be given free play in the joints when it comesto economic legislation. Apart from the presumption of constitutionalityCwhich arises in such cases, the legislative judgment in economic choicesmust be given a certain degree of deference by the courts. In para120 of the said judgment, this Court held:

“120. The Insolvency Code is a legislation which deals witheconomic matters and, in the larger sense, deals with the economyDof the country as a whole. Earlier experiments, as we have seen,in terms of legislations having failed, “trial” having led to repeated“errors”, ultimately led to the enactment of the Code. Theexperiment contained in the Code, judged by the generality ofits provisions and not by so-called crudities and inequities thathave been pointed out by the petitioners, passes constitutionalEmuster. To stay experimentation in things economic is a graveresponsibility, and denial of the right to experiment is fraught withserious consequences to the nation. We have also seen that theworking of the Code is being monitored by the CentralGovernment by Expert Committees that have been set up in thisFbehalf. Amendments have been made in the short period in whichthe Code has operated, both to the Code itself as well as tosubordinate legislation made under it. This process is an ongoingprocess which involves all stakeholders, including the petitioners.”

It is in this background that the constitutional challenge to theGAmending Act of 2019 will have to be decided.

70. Closely on the heels of the impugned NCLAT judgment whichwas delivered on 04.07.2019, a representation dated 17.07.2019 waswritten by the Deputy Secretary General, FICCI to the Secretary,Ministry of Corporate Affairs, pointing out the flaws of the NCLATjudgment and suggesting that the Government may consider amendmentH

of the Code to reinstate the law as it was and should be. Thisrepresentation stated:

“A case in point is the recent NCLAT judgment which, in effect,places Secured and unsecured Financial Creditors as well asFinancial and Operational Creditors on an equal footing, thusvirtually erasing the distinction specifically carved between thesetwo classes of creditors by the provisions of the Code. It maybe noted that the consequences of this order stretch beyond thisparticular case.

The doctrine that secured creditors shall rank ahead of unsecuredcreditors is a core principle of banking. It allows banks to lendto companies and individuals at lower rates of interest in asecured lending because they know that their loan is secured andin the eventuality of a default, their losses would be mitigated.By virtue of this order, the borrowing rates for all classes wouldgo up in the future because banks can’t be sure of protectingtheir losses. The fundamental principles of credit analysis andrating no longer hold true. This would also result in unjustenrichment for some creditors who, knowing that they don’t havebenefit of the security, lent at a much higher rate as comparedto the secured lenders. Besides earning far more money thansecured creditors, due to higher interest rate during the preinsolvency stage they now have the benefit of higher share inthe plan value, at the expense of secured creditors. In fact theruling puts in question the very concept of security – what is theuse of a charge/security if it is meaningless in insolvency? Evenother statutes, including the Companies Act, 2013 clearly laydown a distinction between secured and unsecured creditors andif both are treated at par it will be a huge disincentive for securedcreditors…In fact, in its judgement on the constitutionality of theIBC earlier this year, the Supreme Court had justified thedifference between financial and operational creditors. TheNCLAT order effectively negates that distinction, which is againstthe fundamental theme of the IBC. If the distinction betweensecured and unsecured financial creditors and between financialand operational creditors is not maintained, bankers would bereluctant to use the IBC provisions for resolution of stressedassets, and would prefer for the companies to enter liquidation,which is certainly not the intent of the Code. The decision may AB

C

D

EF

G

H

A

also open the flood-gates for reopening of previously concludedcases as well as filing of fresh applications and appeals byoperational creditors, alleging discrimination and seeking paritywith financial creditors and also by unsecured financial creditors,alleging discrimination and seeking parity with secured financialcreditors.

B

xxx xxx xxx

We would like to draw your attention to Sections 30 and 31 ofthe Code which contain detailed provisions on submission andapproval of the resolution plan. As per section 31(1), once theCAdjudicating Authority is satisfied that the resolution plan asapproved by the committee of creditors meets the requirementsof section 30, it shall approve the resolution plan. The Insolvencyand Bankruptcy Board of India has also prescribed rules andregulations on mandatory requirements of resolution plan. Thestatute thus clearly empowers the committee of creditors toDdecide the distribution of funds. It also recognizes that as longas the resolution plan is in conformity with law, the AdjudicationAuthority must approve the resolution plan, as is evidenced bythe usage of the word ‘shall’ in section 31(1). In K. Sashidharcase the Supreme Court has clearly held that commercialEdecisions of the committee of creditors are not open to judicialreview. We would like to clarify that the fundamental principlethat there should be no discrimination between similarly situatedcreditors is not being questioned by the industry. The question iswhether we can redefine class to mean all financial creditorsirrespective of inter-creditor arrangement or their security. SuchFa finding is a complete rewrite of laws, practices and theagreement and bargain of parties at the time of financing (orwhen goods or services were provided).

C

D

We therefore strongly suggest that the Government may consideramendment of the Code to expressly clarify the distinctionbetween secured and unsecured creditors and between financialand operational creditors. Also, decisions of resolution applicant,as accepted by the committee of creditors should be consideredfinal unless they are found to be contrary to law. This wouldavoid any confusion; be in line with the global practices and heldIndia retain its status of preferred investment destination.”

G

H

A

71. Pursuant to this and representations from Banks and industry,the Amending Act of 2019 was then made. Sections 4 and 6 of theAmending Act of 2019 read as under:

“4. Amendment of section 12.

In section 12 of the principal Act, in sub-section (3), after theproviso, the following provisos shall be inserted, namely:––

B

“Provided further that the corporate insolvency resolution processshall mandatorily be completed within a period of three hundredand thirty days from the insolvency commencement date, includingany extension of the period of corporate insolvency resolutionprocess granted under this section and the time taken in legalproceedings in relation to such resolution process of the corporatedebtor:

Provided also that where the insolvency resolution process of acorporate debtor is pending and has not been completed withinthe period referred to in the second proviso, such resolutionprocess shall be completed within a period of ninety days fromthe date of commencement of the Insolvency and BankruptcyCode (Amendment) Act, 2019.”

D

xxx xxx xxx

E

6. Amendment to section 30.

In section 30 of the principal Act,––

(a) in sub-section (2), for clause (b), the following shall besubstituted, namely:—

F

“(b) provides for the payment of debts of operational creditorsin such manner as may be specified by the Board which shallnot be less than––

(i) the amount to be paid to such creditors in the event ofa liquidation of the corporate debtor under section 53;Gor

(ii) the amount that would have been paid to such creditors,if the amount to be distributed under the resolution planhad been distributed in accordance with the order ofpriority in sub-section (1) of section 53, H

A

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, whichshall not be less than the amount to be paid to such creditors inaccordance with sub-section (1) of section 53 in the event of aliquidation of the corporate debtor.

B

Explanation 1.––For the removal of doubts, it is hereby clarifiedthat a distribution in accordance with the provisions of this clauseshall be fair and equitable to such creditors.

Explanation 2.––For the purposes of this clause, it is herebyCdeclared 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 corporateinsolvency resolution process of a corporate debtor––

(i) where a resolution plan has not been approved orrejected by the Adjudicating Authority; D

(ii) where an appeal has been preferred under section 61or section 62 or such an appeal is not time barred underany provision of law for the time being in force; or

(iii) where a legal proceeding has been initiated in any courtagainst the decision of the Adjudicating Authority inrespect of a resolution plan;”

E

b) in sub-section (4), after the words “feasibility and viability,”,the words, brackets and figures “the manner of distributionproposed, which may take into account the order of priorityFamongst creditors as laid down in sub-section (1) of section 53,including the priority and value of the security interest of asecured creditor” shall be inserted.”

72. The frontal attack of Shri Sibal on Sections 4 and 6 of theAmending Act of 2019 is that it was tailor-made to do away with theGjudgment of the NCLAT in this very matter. This being so, suchlegislation would be clearly outside the bounds of the legislature as thelegislature cannot interfere with a particular judgment and set it aside.

73. There is no doubt that the Amending Act of 2019 consists ofseveral Sections which have been enacted/amended as difficulties haveHarisen in the working of the Code. While it is true that it may well be that the law laid down by the NCLAT in this very case forms the basisfor some of these amendments, it cannot be said that the legislaturehas directly set aside the judgment of the NCLAT. Since an appealagainst the judgment of the NCLAT lies to the Supreme Court, thelegislature is well within its bounds to lay down laws of generalapplication to all persons affected, bearing in mind what it considers tobe a curing of a defective reading of the law by an Appellate Tribunal.There can be no doubt whatsoever that apart from the present casethe amendments made by the Amending Act of 2019 apply down theboard to all persons who are affected by its provisions. Also, it is settledlaw that bad faith, in the sense of improper motives, cannot be ascribedto a legislature making laws. This is settled law ever since the celebratedjudgment of B.K. Mukherjea,J. In K.C. Gajapati Narayan Deo andOthers v. State of Orissa 1954 SCR 1. This was felicitously laid downas follows:

“…As the question is of some importance and is likely to bedebated in similar cases in future, it would be necessary toexamine the precise scope and meaning of what is knownordinarily as the doctrine of “colourable legislation”.

It may be made clear at the outset that the doctrine of colourablelegislation does not involve any question of bona fides or mala fides onthe part of the legislature. The whole doctrine resolves itself into thequestion of competency of a particular legislature to enact a particularlaw. If the legislature is competent to pass a particular law, the motiveswhich impelled it to act are really irrelevant. On the other hand, if thelegislature lacks competency, the question of motive does not arise atall. Whether a statute is constitutional or not is thus always a questionof power [Vide Cooley’s Constitutional Limitations, Vol 1 p 379] . Adistinction, however, exists between a legislature which is legallyomnipotent like the British Parliament and the laws promulgated by itwhich could not be challenged on the ground of incompetence, and alegislature which enjoys only a limited or a qualified jurisdiction. If theConstitution of a State distributes the legislative powers amongstdifferent bodies, which have to act within their respective spheresmarked out by specific legislative entries, or if there are limitations onthe legislative authority in the shape of fundamental rights, questionsdo arise as to whether the legislature in a particular case has or hasnot, in respect to the subject-matter of the statute or in the method ofenacting it, transgressed the limits of its constitutional powers.”

AB

C

D

E

F

G

H

ALikewise, a 7-Judge Bench in STO v. Ajit Mills Ltd. (1977) 4SCC 98, has also clearly stated as follows:

“16. Before scanning the decisions to discover the principle laiddown therein, we may dispose of the contention which hasappealed to the High Court based on “colourable device’.Certainly, this is a malignant expression and when flung with fataleffect at a representative instrumentality like the legislature,deserves serious reflection. If, forgetting comity, the Legislativewing charges the Judicature wing with “colourable” judgments,it will be intolerably subversive of the rule of law. Therefore, wetoo must restrain ourselves from making this charge except inabsolutely plain cases and pause to understand the import of thedoctrine of colourable exercise of public power, especiallylegislative power. In this branch of law, “colourable” is not “taintedwith bad faith or evil motive’ ; it is not pejorative or crooked.Conceptually, “colourability” is bound up with incompetency.“Colour’, according to Black’s Legal Dictionary, is “anappearance, semblance or simulacrum, as distinguished from thatwhich is real ... a deceptive appearance ... a lack of reality’. Athing is colourable which is, in appearance only and not in reality,what it purports to be. In Indian terms, it is maya. In thejurisprudence of power, colourable exercise of or fraud onlegislative power or, more frightfully, fraud on the Constitution,are expressions which merely mean that the legislature isincompetent to enact a particular law although the label ofcompetency is stuck on it, and then it is colourable legislation. Itis very important to notice that if the legislature is competent topass the particular law, the motives which impel it to pass thelaw are really irrelevant. To put it more relevantly to the caseon hand, if a legislation, apparently enacted under one Entry inthe List, falls in plain truth and fact, within the content, not ofthat Entry but of one assigned to another legislature, it can bestruck down as colourable even if the motive were mostcommendable. In other words, the letter of the lawnotwithstanding, what is the pith and substance of the Act? Doesit fall within any entry assigned to that legislature in pith andsubstance, or as covered by the ancillary powers implied in thatEntry? Can the legislation be read down reasonably to bring itwithin the legislature’s constitutional powers? If these questions

B

C

D

E

F

G

H

can be answered affirmatively, the law is valid. Malice or motiveis beside the point, and it is not permissible to suggestparliamentary incompetence on the score of mala fides.”

It is clear therefore for all these reasons that Sections 4 and 6of the Amending Act of 2019 cannot be struck down on this score.

74. So far as Section 4 is concerned, it is clear that the originaltimelines in which a CIRP must be completed have now been extendedto 330 days, which is 60 days more than 180 plus 90 days (which isequal to 270 days). But this 330-day period includes the time taken inlegal proceedings in relation to such resolution process of the corporatedebtor. This provision is to get over what is stated in the judgment inArcelorMittal India (supra) at paragraph 86, that the time taken inlegal proceedings in relation to the corporate resolution process mustbe excluded from the timeline mentioned in Section 12. Secondly, thethird proviso added to the Section also mandates that where the periodof 330 days is over on the date of commencement of the AmendingAct of 2019, a further grace period of 90 days from such date is given,within which such process shall either be completed or the corporatedebtor be sent into liquidation.

75. The raison d’être for this provision comes from the experiencethat has been plaguing the legislature ever since SICA was promulgated.The problems of SICA and other successor enactments was stated ingraphic detail in Madras Petrochem Limited v. BIFR (2016) 4 SCC1 at paragraphs 17 to 23. It will be seen from these paragraphs thatthough SICA, the Recovery of Debts Act of 1993 and the Securitisationand Reconstruction of Financial Assets and Enforcement of SecuritiesInterest Act, 2002 (hereinafter referred to as “SARFAESI Act”) allprovided for expeditious determination and timely detection of sicknessin industrial companies, yet, legal proceedings under the same draggedon for years as a result of which all these statutory measures provedto be abject failures in resolving stressed assets. It is for this reasonthat the BLRC Report of 2015 stated:

“In limited circumstances, if 75 % of the creditors committeedecides that the complexity of a case requires more time for aresolution plan to be finalised, a onetime extension of the 180day period for up to 90 days is possible with the prior approvalof the adjudicator. This is starkly different from certain presentarrangements which permit the debtor / promoter to seekextensions beyond any limit.

A

B

C

D

E

F

GH

AThis approach has many strengths:

• Asset stripping by promoters is controlled after and beforedefault.

• The promoters can make a proposal that involves buying backthe company for a certain price, alongside a certain debtBrestructuring.

• Others in the economy can make proposals to buy thecompany at a certain price, alongside a certain debtrestructuring.

• All parties knows that if no deal is struck within the stipulatedCperiod, the company will go into liquidation. This will helpavoid delaying tactics. The inability of promoters to steal fromthe company, owing to the supervision of the IP, also helpsreduce the incentive to have a slow lingering death.

• The role of the adjudicator will be on process issues: Toensure that all financial creditors were indeed on the creditorscommittee, and that 75% of the creditors do indeed supportthe resolution plan.

D

xxx xxx xxx

ESpeed is of essence

Speed is of essence for the working of the bankruptcy code, fortwo reasons. First, while the „calm period can help keep anorganisation afloat, without the full clarity of ownership andcontrol, significant decisions cannot be made. Without effectiveleadership, the firm will tend to atrophy and fail. The longer thedelay, the more likely it is that liquidation will be the only answer.Second, the liquidation value tends to go down with time as manyassets suffer from a high economic rate of depreciation.

F

From the viewpoint of creditors, a good realisation can generallybe obtained if the firm is sold as a going concern. Hence, whendelays induce liquidation, there is value destruction. Further, evenin liquidation, the realisation is lower when there are delays.Hence, delays cause value destruction. Thus, achieving a highrecovery rate is primarily about identifying and combating thesources of delay. This same idea is found in FSLRC’s treatmentof the failure of financial firms. The most important objective in G

H

designing a legal framework for dealing with firm failure is theneed for speed.

Identifying and addressing the sources of delay Before the IRP can commence, all parties need an accurate andundisputed set of facts about existing credit, collateral that hasbeen pledged, etc. Under the present arrangements, considerabletime can be lost before all parties obtain this information. Disputesabout these facts can take up years to resolve in court. Theobjective of an IRP that is completed in no more than 180 dayscan be lost owing to these problems.

Hence, the Committee envisions a competitive industry of„information utilities who hold an array of information about allfirms at all times. When the IRP commences, within less than aday, undisputed and complete information would become availableto all persons involved in the IRP and thus address this sourceof delay.

The second important source of delays lies in the adjudicatorymechanisms. In order to address this, the Committeerecommends that the National Company Law Tribunals (forcorporate debtors) and Debt Recovery Tribunals (for individualsand partnership firms) be provided with all the necessaryresources to help them in realising the objectives of the Code.

xxx xxx xxx

Conclusion

The failure of some business plans is integral to the process ofthe market economy. When business failure takes place, the bestoutcome for society is to have a rapid renegotiation between thefinanciers, to finance the going concern using a new arrangementof liabilities and with a new management team. If this cannot bedone, the best outcome for society is a rapid liquidation. Whensuch arrangements can be put into place, the market process ofcreative destruction will work smoothly, with greater competitivevigor and greater competition.”

76. The speech of the Hon’ble Minister on the floor of the Houseof the Rajya Sabha also reflected the fact that with the passage of timethe original intent of quick resolution of stressed assets is getting diluted.

AB

C

D

E

F

G

H

AIt is therefore essential to have time-bound decisions to reinstate thislegislative intent. It was also pointed out on the floor of the House thatthe experience in the working of the Code has not been encouraging.The Minister in her speech to the Rajya Sabha gives the following factsand figures:

B“Now, regarding the Corporate Insolvency Resolution Process(CIRP), under the Code, I want to give you data again as of30th June, 2019. First, I will talk about the status of CIRPs.Number of admitted cases is 2162; number of cases closed onappeal, which I read out about, is 174; number of cases closedCby withdrawal under Section 12A, is 101, I have given you aslightly later data; number of cases closed by resolution is 120;closed by liquidation, 475; and ongoing CIRPs are 1292. So, now,I would like to mention the number of days of waiting. I wouldlike to mention here the details of the ongoing CIRPs, along withthe timelines. Ongoing CIRPs are 1,292, the figure just now IDgave you. Over 330 days, 335 cases; over 270 days, 445 cases;over 180 days and less than 270 days, 221 cases; over 90 daysbut less than 180 days, 349 cases; less than 90 days, 277 cases.The number of days’ pending includes time, if any, excluded bythe tribunals. So, that gives you a picture on what is the kind ofEwait and, therefore, why we want to bring the Amendments forthis speeding up.”

Mrs. Madhvi Divan also pointed out that the Hon’ble Minister’sspeech had also adverted to the strengthening of the NCLT as follows:

“In view of the increasing number of cases, the Government hasFincreased the number of benches of NCLT from 10 to 15, duringjust the last one year. In one year, we have increased it from 10to 15. The number of members has also been increased in aphased manner. Recently, 26 new members have joined bringingthe total number of members to 52. Sir, more than one court hasGbeen operationalised in the benches where a large number ofcases are pending, such as, in Mumbai, Delhi, Chennai andKolkata. The projects like e-governance and e-courts have alsobeen implemented for faster and speedier disposal of the cases.”

77. Shri Sibal vehemently objected to any reliance on the speechHof the Minister and cited K.P. Varghese v. ITO (1982) 1 SCR 629

and K.S. Paripoornan v. State of Kerala (1994) 5 SCC 593. InVarghese (supra) this Court held, at page 645, as follows:

“…Now it is true that the speeches made by the Members ofthe Legislature on the floor of the House when a Bill for enactinga statutory provision is being debated are inadmissible for thepurpose of interpreting the statutory provision but the speechmade by the Mover of the Bill explaining the reason for theintroduction of the Bill can certainly be referred to for the purposeof ascertaining the mischief sought to be remedied by thelegislation and the object and purpose for which the legislation isenacted. This is in accord with the recent trend in juristic thoughtnot only in western countries but also in India that interpretationof a statute being an exercise in the ascertainment of meaning,everything which is logically relevant should be admissible. In factthere are at least three decisions of this Court, one in LokaShikshana Trust v. CIT [(1976) 1 SCC 254 : 1976 SCC (Tax)14 : 101 ITR 234 : 1976 LR 1] , the other in Indian Chamberof Commerce v. Commissioner of Income Tax [(1976) 1 SCC324 : 1976 SCC (Tax) 41 : 101 ITR 796 : 1976 Tax LR 210] andthe third in Additional Commissioner of Income Tax v. SuratArt Silk Cloth Manufacturers’ Association [(1980) 2 SCC 31: 1980 SCC (Tax) 170 : 121 ITR 1] where the speech made bythe Finance Minister while introducing the exclusionary clausein Section 2, clause (15) of the Act was relied upon by the Courtfor the purpose of ascertaining what was the reason forintroducing that clause.”

In Paripoornan (supra), the Court held as follows:

In Paripoornan (supra), the Court held as follows:

“77. In support of the construction placed on Section 23(1-A)of the principal Act and Section 30(1) of the amending Act inZora Singh [(1992) 1 SCC 673] the learned counsel for theclaimants have referred to the Statement of Objects and Reasonsappended to the Bill in 1982 as well as the Bill of 1984 and havesubmitted that the said Statement of Objects and Reasons showthat the object underlying the enactment of Section 23(1-A) wasto remove the hardship to the affected parties on account ofpendency of acquisition proceedings for a long time which rendersunrealistic the amounts of compensation offered to them. Ourattention has also been invited to the speeches made by members A

B

C

D

E

F

G

H

A

Aat the time when the Bill was considered and was adopted byParliament. It has been urged that a construction which advancesthe said object must be adopted. We are unable to accept thiscontention. As regards the Statement of Objects and Reasonsappended to the Bill the law is well settled that the same cannotbe used except for the limited purpose of understanding theBbackground and the state of affairs leading to the legislation butit cannot be used as an aid to the construction of the statute.(See Aswini Kumar Ghosh v. Arabinda Bose [1953 SCR 1,28 : AIR 1952 SC 369] ; State of W.B. v. Subodh Gopal Bose[1954 SCR 587, 628 : AIR 1954 SC 92] per Das, J.; State ofCW.B. v. Union of India [(1964) 1 SCR 371, 383 : AIR 1963 SC1241] .) Similarly, with regard to speeches made by the membersin the House at the time of consideration of the Bill it has beenheld that they are not admissible as extrinsic aids to theinterpretation of the statutory provisions though the speech of themover of the Bill may be referred to for the purpose of findingDout the object intended to be achieved by the Bill. (See State ofTravancore-Cochin v. Bombay Co. Ltd. [1952 SCR 1112 : AIR1952 SC 366] and Aswini Kumar v. Arabinda Bose [1953 SCR1, 28 : AIR 1952 SC 369] .) On a perusal of the Bills of 1982and 1984 we find that they did not contain the provisions foundEin Section 23(1-A) of the principal Act and Section 30(1) of theamending Act. These provisions were inserted when the 1984Bill was under consideration before Parliament. The Statementof Objects and Reasons does not, therefore, throw any light onthe circumstances in which these provisions were introduced.”

FAs the speech of the Hon’ble Minister on the floor of the Houseonly indicates the object for which the amendment was made and as itcontains certain data which it is useful to advert to, we take aid fromthe speech not in order to construe the amended Section 12, but onlyin order to explain why the Amending Act of 2019 was brought about.

G

78. Given the fact that timely resolution of stressed assets is akey factor in the successful working of the Code, the only real argumentagainst the amendment is that the time taken in legal proceedings cannotever be put against the parties before the NCLT and NCLAT basedupon a Latin maxim which sub-serves the cause of justice namely, actusHcuriae neminem gravabit.

79. In Atma Ram Mittal v. Ishwar Singh Punia (1988) 4 SCC284, this Court applied the maxim to time taken in legal proceedingsunder the Haryana Urban (Control of Rent and Eviction) Act, 1973,holding:

“8. It is well-settled that no man should suffer because of thefault of the court or delay in the procedure. Broom has statedthe maxim “actus curiae neminem gravabit” — an act of courtshall prejudice no man. Therefore, having regard to the timenormally consumed for adjudication, the ten years’ exemption orholiday from the application of the Rent Act would becomeillusory, if the suit has to be filed within that time and be disposedof finally. It is common knowledge that unless a suit is institutedsoon after the date of letting it would never be disposed of withinten years and even then within that time it may not be disposedof. That will make the ten years holiday from the Rent Act illusoryand provide no incentive to the landlords to build new houses tosolve problem of shortages of houses. The purpose of legislationwould thus be defeated. Purposive interpretation in a socialamelioration legislation is an imperative irrespective of anythingelse.”

Likewise, in Sarah Mathew v. Institute of Cardio VascularDiseases, (2014) 2 SCC 62, this Court held that for the purpose ofcomputing limitation under Section 468 of the Code of CriminalProcedure, 1973 the relevant date is the date of filing of the complaintand not the date on which the Magistrate takes cognizance, applyingthe aforesaid maxim as follows:

“39. As we have already noted in reaching this conclusion, lightcan be drawn from legal maxims. Legal maxims are referred toin Bharat Kale [Bharat Damodar Kale v. State of A.P., (2003)8 SCC 559 : 2004 SCC (Cri) 39] , Japani Sahoo [Japani Sahoov. Chandra Sekhar Mohanty, (2007) 7 SCC 394 : (2007) 3 SCC(Cri) 388] and Vanka Radhamanohari [Vanka Radhamanohariv. Vanka Venkata Reddy, (1993) 3 SCC 4 : 1993 SCC (Cri) 571].The object of the criminal law is to punish perpetrators of crime.This is in tune with the well-known legal maxim nullum tempusaut locus occurrit regi, which means that a crime never dies.At the same time, it is also the policy of law to assist the vigilantand not the sleepy. This is expressed in the Latin maxim A

B

C

D

E

F

G

H

Avigilantibus et non dormientibus, jura subveniunt. ChapterXXXVI CrPC which provides limitation period for certain typesof offences for which lesser sentence is provided draws supportfrom this maxim. But, even certain offences such as Section 384or 465 IPC, which have lesser punishment may have serioussocial consequences. The provision is, therefore, made forBcondonation of delay. Treating date of filing of complaint or dateof initiation of proceedings as the relevant date for computinglimitation under Section 468 of the Code is supported by the legalmaxim actus curiae neminem gravabit which means that theact of court shall prejudice no man. It bears repetition to stateCthat the court’s inaction in taking cognizance i.e. court’s inactionin applying mind to the suspected offence should not be allowedto cause prejudice to a diligent complainant. Chapter XXXVI thuspresents the interplay of these three legal maxims. The provisionsof this Chapter, however, are not interpreted solely on the basisof these maxims. They only serve as guiding principles.”D

Both these judgments have been followed in Neeraj KumarSainy v. State of Uttar Pradesh (2017) 14 SCC 136 at paragraphs29 and 32. Given the fact that the time taken in legal proceedings cannotpossibly harm a litigant if the Tribunal itself cannot take up the litigant’scase within the requisite period for no fault of the litigant, a provisionEwhich mandatorily requires the CIRP to end by a certain date - withoutany exception thereto - may well be an excessive interference with alitigant’s fundamental right to non-arbitrary treatment under Article 14and an excessive, arbitrary and therefore unreasonable restriction on alitigant’s fundamental right to carry on business under Article 19(1)(g)

Fof the Constitution of India. This being the case, we would ordinarilyhave struck down the provision in its entirety. However, that would thenthrow the baby out with the bath water, inasmuch as the time taken inlegal proceedings is certainly an important factor which causes delay,and which has made previous statutory experiments fail as we have seen from Madras Petrochem (supra). Thus, while leaving theGprovision otherwise intact, we strike down the word “mandatorily” asbeing manifestly arbitrary under Article 14 of the Constitution of Indiaand as being an excessive and unreasonable restriction on the litigant’sright to carry on business under Article 19(1)(g) of the Constitution.The effect of this declaration is that ordinarilythe time taken in relationHto the corporate resolution process of the corporate debtor must be completed within the outer limit of 330 days from the insolvencycommencement date, including extensions and the time taken in legalproceedings. However, on the facts of a given case, if it can be shownto the Adjudicating Authority and/or Appellate Tribunal under the Codethat only a short period is left for completion of the insolvency resolutionprocess beyond 330 days, and that it would be in the interest of allstakeholders that the corporate debtor be put back on its feet insteadof being sent into liquidation and that the time taken in legal proceedingsis largely due to factors owing to which the fault cannot be ascribed tothe litigants before the Adjudicating Authority and/or Appellate Tribunal,the delay or a large part thereof being attributable to the tardy processof the Adjudicating Authority and/or the Appellate Tribunal itself, it maybe open in such cases for the Adjudicating Authority and/or AppellateTribunal to extend time beyond 330 days. Likewise, even under thenewly added proviso to Section 12, if by reason of all the aforesaidfactors the grace period of 90 days from the date of commencementof the Amending Act of 2019 is exceeded, there again a discretion canbe exercised by the Adjudicating Authority and/or Appellate Tribunalto further extend time keeping the aforesaid parameters in mind. It isonly in such exceptional cases that time can be extended, the generalrule being that 330 days is the outer limit within which resolution of thestressed assets of the corporate debtor must take place beyond whichthe corporate debtor is to be driven into liquidation.

80. When it comes to the validity of the substitution of Section30(2)(b) by Section 6 of the Amending Act of 2019, it is clear that thesubstituted Section 30(2)(b) gives operational creditors something morethan was given earlier as it is the higher of the figures mentioned insub-clauses (i) and (ii) of sub-clause (b) that is now to be paid as aminimum amount to operational creditors. The same goes for the latterpart of sub-clause (b) which refers to dissentient financial creditors.Mrs. Madhavi Divan is correct in her argument that Section 30(2)(b)is in fact a beneficial provision in favour of operational creditors anddissentient financial creditors as they are now to be paid a certainminimum amount, the minimum in the case of operational creditors beingthe higher of the two figures calculated under sub-clauses (i) and (ii)of clause (b), and the minimum in the case of dissentient financialcreditor being a minimum amount that was not earlier payable. As amatter of fact, pre-amendment, secured financial creditors maycramdown unsecured financial creditors who are dissentient, the majority A

B

C

DE

F

G

H

A

B

C

DE

F

G

H

Avote of 66% voting to give them nothing or next to nothing for theirdues. In the earlier regime it may have been possible to have done thisbut after the amendment such financial creditors are now to be paidthe minimum amount mentioned in sub-section (2). Mrs. Madhavi Divanis also correct in stating that the order of priority of payment of creditorsBmentioned in Section 53 is not engrafted in sub-section (2)(b) asamended. Section 53 is only referred to in order that a certain minimumfigure be paid to different classes of operational and financial creditors.It is only for this purpose that Section 53(1) is to be looked at as it isclear that it is the commercial wisdom of the Committee of Creditorsthat is free to determine what amounts be paid to different classes andCsub-classes of creditors in accordance with the provisions of the Codeand the Regulations made thereunder.

81. As has been held in this judgment, it is clear that Explanation1 has only been inserted in order that the Adjudicating Authority andthe Appellate Tribunal cannot enter into the merits of a business decisionDof the requisite majority of the Committee of Creditors. As has alsobeen held in this judgment, there is no residual equity jurisdiction in theAdjudicating Authority or the Appellate Tribunal to interfere in the meritsof a business decision taken by the requisite majority of the Committeeof Creditors, provided that it is otherwise in conformity with theEprovisions of the Code and the Regulations, as has been laid down bythis judgment.

82. Equally, Explanation 2 applies the substituted Section topending proceedings either at the level of the Adjudicating Authority orthe Appellate Authority or in a Writ or Civil Court. As has been held inFSwiss Ribbons (supra) and ArcelorMittal India (supra) (seeparagraph 97 of Swiss Ribbons (supra) and paragraph 82, 84 ofArcelorMittal India (supra)), no vested right inheres in any resolutionapplicant to have its plan approved under the Code. Also, the FederalCourt in Lachmeshwar Prasad Shukul v. Keshwar Lal ChaudhuriAIR 1941 FC 5 and later, this Court in Shiv Shakti Coop. HousingGSociety, Nagpur v. Swaraj Developers & Ors. (2003) 6 SCC 659(at paragraphs 16 and 17) have held that an appellate proceeding is acontinuation of an original proceeding. This being so, a change in lawcan always be applied to an original or appellate proceeding. For thisreason also, Explanation 2 is constitutionally valid, not having anyHretrospective operation so as to impair vested rights.

83. The challenge to sub-clause (b) of Section 6 of the AmendingAct of 2019, again goes to the flexibility that the Code gives to theCommittee of Creditors to approve or not to approve a resolution planand which may take into account different classes of creditors as ismentioned in Section 53, and different priorities and values of securityinterests of a secured creditor. This flexibility is referred to in theBLRC report, 2015 (see paragraph 33 of this judgment). Also, thediscretion given to the Committee of Creditors by the word “may” againmakes it clear that this is only a guideline which is set out by this sub-section which may be applied by the Committee of Creditors in arrivingat a business decision as to acceptance or rejection of a resolution plan.For all these reasons, therefore, it is difficult to hold that any of theseprovisions is constitutionally infirm.

The resolution plan of ArcelorMittal as amended andobjections thereto

The resolution plan of ArcelorMittal as amended andobjections thereto

84. The resolution plan submitted by ArcelorMittal on 02.04.2018proposed an upfront payment of INR 35,000 crores towards resolutionof the debt of INR 49,213 crores of financial creditors. This wasbuttressed by a letter of commitment from Credit Agricole Corporateand Investment Bank. From this upfront cash recovery, unsecuredfinancial creditors were to be paid only an aggregate amount of 5% oftheir admitted claims. Apart from this, INR 8,000 crores of upfront freshcapital infusion for improving operations and enhancing revival prospectsof the corporate debtor was also proposed. So far as operationalcreditors were concerned, it was proposed that workmen and employeeswere to be paid INR 18 crores in full against their admitted claims,and out of other operational creditors, those small trade creditors definedas “having admitted claims of less than INR 1 crore” were to be paidin full, as opposed to trade and government creditors of over INR 1crore, who were to be paid aggregate amount INR 196 crores. Otheroperational creditors were to be given nothing, liquidation value beingpayable to operational creditors as a class being in any case nil (INR3339 crores were the aggregate admitted claims of all operationalcreditors as a class). Under the caption “Treatment of various stakeholders” the plan provided as follows:- “VIII. Treatment of Various Stakeholders”

xxx xxx xxx

A

B

C

DE

F

G

H

E85. On 22.10.2018, various changes were made in the originalresolution plan as follows:

“The representatives of AM India of AM India thanked the RP.Thereafter, they presented a brief summary of the revisions madeto the financial proposal. They informed that as per the directivesFof the CoC, AM India had deliberated and negotiated with theSub-Committee. Thereafter, the representative highlighted certainkey revisions made to the resolution plan, which inter aliaincluded revisions in relation to (a) upfront cash recovery availableto secured and unsecured financial creditors of ESIL; (b) upfrontfresh capital infusion; (c) process of closing adjustment, whichGincluded provision of audit. He further added that they had notprovided how the upfront cash would be distributed and the samehas been left at the discretion of the CoC. He further added thatthe business plan has not undergone any substantial changes andthe negotiations were largely around the financial proposal andHthat AM India is committed to implement the plan, as agreed.

Thereafter, the representative of AM India also deliberated withthe members of the CoC regarding the revised financial proposaland responded to the queries raised in relation thereto.”

It was stated that the value and quality of security should be thebasis on which proceeds should be distributed by most of the securedfinancial creditors. This amended resolution plan was approved by amajority of 92.24% of financial creditors. The sharing ratio betweensecured financial creditors having charge on project assets of thecorporate debtor was 99.86% as opposed to 0.14%, so far as StandardChartered Bank was concerned, which only had a charge on the pledgeof shares of ESOL, being an offshore subsidiary of the corporatedebtor. The upfront payment to secured financial creditors on theeffective date would now be INR 41,909.29 crores and INR 60.71crores to Standard Chartered Bank. It was pointed out that this wasbased on the worth of those shares as security, being only INR 24.86crores. The reasons given for acceptance of this amended resolutionplan was stated as follows:

“By majority consensus of COC (except Standard CharteredBank and SREI), it was agreed that fairness of distribution wouldbe reflected only if distribution be made based on underlyingsecurity value and quality of security. Based on a comparison ofthe two suggested options based on fair value and liquidationvalue, in the interest of all stake holders and with the objectiveof the Code it is proposed to the COC to accept the sharing ratioas per the Liquidation Valuation Report and also to SecuredFinancial Creditors having Charge on Project Asset of ESIL fortaking a sacrifice of Rs.37.76 Crores (for adopting the sharingratio as per the Liquidation Valuation Report instead of fair value)which shall be allocated to Secured Financial Creditors havingCharge on Pledge of Shares of ESOL.

While allocation of the Resolution Amount it is pertinent to notethat the Committee of creditors has the widest discretion todetermine the terms of the resolution plan.

A. At the outset it is important to be noted that thelegislature in their wisdom under the provisions of theInsolvency and Bankruptcy Code, 2016 (Code) have leftthe decision-making in respect of commercial matterscompletely in the domain of the Committee of Creditors A

B

C

D

E

F

G

H

A

B

C

D

E

F

G

H

(COC). In fact even the Bankruptcy Law ReformsCommittee report (which formed the basis for theenactment of the Code) specifically notes the deliberatescheme of the Code, where the law does not prescribeany particular manner of insolvency resolution andleaves this commercial decision making process to theCOC without the interference of the legislature as wellas judiciary.

B. Further, pro rate distribution cannot be the only methodof distribution of assets, as it would lead to the disastrousconsequences where the creditors would lose theirfreedom to restructure the debt as they deem fit. Thisan important commercial decision which is required tobe made by the Code and a strait jacket formula for allcases would result in dilution of the provisions of theCode and would incentivize all secured creditors toliquidate the company rather than opt for resolution. Itwas noted that generally all secured financial creditorsare prudent entities which grant loans after exercisingdue-diligence and are presumed to be able to evaluatetheir interest and risks sufficiently. Moreover it maynegatively impact the credit market and discouragebanks and other financial creditors from granting largeproject loans which are more often than not grantedagainst property or other valuable collateral.

C. The Report of the Insolvency Law Committee providesvaluable insights on the principles governing inter-creditor agreements and their relevance to distributionarrangements. In practice, subordination agreementsinter-se creditors were respected in practice. This wasalso the stated position in insolvency resolutionproceedings other jurisdiction and in other developedcountries.

D. The Hon’ble National Company Law Appellate Tribunalhas held that the COC has the discretion to approve anyresolution plan and its decision to approve the samecannot be interfered with by the Adjudicating Authorityor the Appellate Authority, except for in terms of Section

v. SATISH KUMAR GUPTA [R. F. NARIMAN, J.]

31(1) to examine compliance of Section 30(2) read withrelevant regulations. (See Kannan Tiruvengandram Vs.M.K. Shah Exports Ltd. & Ors. in and DarshakEnterprise Pvt. Ltd. and Ors. v. Chhaparia IndustriesPvt. Ltd. and Ors.

E. The Code specifically provides the COC with the powerunder section 30(4) of the Code, to approve a resolutionwith requisite majority as set out thereunder. It is anaccepted position in law, and as enunciated in variouspronouncements of the Supreme Court of India thatwhere a power is conferred or a duty is imposed by astatute, and there is nothing expressly inhibiting theexercise of the power or the performance of the dutyby any limitations or restrictions it is reasonable to holdthat it carries with it all power of doing all such acts oremploying all such means as are reasonably necessaryfor its execution. The below mentioned provisions of theCode and the Insolvency and Bankruptcy Board of India(Insolvency Resolution Process for Corporate Persons).Regulation 2016 (CIR Regulations) set out the powersof the COC in this regard:

Section 31 of the Code (Approval of Resolution Plan):

“(1) If the Adjudicating Authority is satisfied that the resolutionplan 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 resolutionplan which shall be binding on the corporate debtor and itsemployees, members, creditors, guarantors and other stakeholdersinvolved in the resolution plan.

Regulation 39 of the CIR Regulations, 2016; “(2) The resolution professional shall present all resolution plansthat meet the requirements of the Code and these Regulationsto the Committee for its consideration.

(3) The committee may approve any resolution plan with suchmodifications as it deems fit xxx xxx xxx A

BC

D

E

F

G

H

412SUPREME COURT REPORTS

A

AK. It is a recognized principle of insolvency law thatcreditor rights and ranking of priority claims existingbefore commencement of insolvency must be recognizedand respected in the insolvency proceedings. Recognitionof such ranking of priorities of existing and post-commencement creditor claims provide predictability toBlenders and ensure consistent application of the rules,create confidence in the proceedings and enableparticipants to adopt appropriate measures to managerisk. At macro level, it helps create certainty in themarket and facilitate the provision of credit, in particularCwith respect to the rights and priorities of securedcreditors. It is also well established that best practicesrequire that priority to claims that are not based oncommercial bargains should be minimalized. Thisprinciple is unequivocally articulated in the UnitedNations Commission on International Trade LawD(UNCITRAL) Legislative Guide on Insolvency law(hereinafter, the “UNCITRAL Guide”) in the chapterthat recommends the policy and legislative design of the“key objectives and structure of an effective andefficient insolvency law”

E

L. Further, in recognition of the principle that creditor rightsand ranking of priority claims existing beforecommencement of insolvency must be recognised andexpected in the insolvency proceedings. To protect/respect the creditor rights and ranking of priority claims,the IBC does not in any manner impose any prescription,mandatory or otherwise on the resolution applicant thatwould be disruptive of the creditor rights and priorityclaims of the secured creditors as on insolvencycommencement date. If this rule was not to berecognised, it will lead to a free-for-all situation, no shortof chaos, as any rights on differential security interestwould then be ignored.

F

G

M. Therefore in conclusion, since the Code provides theCOC with the power to approve a resolution for theCorporate Debtor, the manner in which such resolutionHshall be executed including but not limited to the decision

as to the methodology of distribution or the amount amoney to be paid to individual stakeholders would alsobe a decision which the COC would be permitted to take,especially in the absence of any express provision in theCode prohibiting such a decision by the COC. As longas such decisions are not contrary to the provisions ofthe Code.”

86. The final resolution plan as approved on 23.10.2018 was asfollows - in the place of INR 35,000 crores to be paid on the effectivedate as an upfront amount, INR 39,500 crores and INR 2500 crores,aggregating INR 42,000 crores was to be paid. The resolution applicantagreed that the Committee of Creditors will decide the manner in whichthe financial package being offered by the resolution applicant to financialcreditors will be distributed to secured financial creditors. The paymentof INR 17.4 crore was to be made to unsecured financial creditors witha claim amount of more than INR 10 lakhs, and INR 30.55 lakhs tosuch creditors with a claim amount of less than INR 10 lakhs, with thefresh capital infusion for improving operations and enhancing revivalprospects of the corporate debtor remaining at INR 8,000 crores. Sofar as operational creditors were concerned, there was no change made.

87. At the 22[nd] meeting of the Committee of Creditors dated27.03.2019, the NCLT order of 08.03.2019 was discussed and it wasfelt that INR 1,000 crores extra be paid for operational creditors overand above INR 1 crore each, as follows:

“The representative of EARC mentioned that without prejudiceto the appeals, a lump sum amount may be set-aside and put tovote as they are not averse to examining it. The representativeof SBI concurred with the views of the representative of EARC.He further mentioned that CoC as well as SCB has challengedthe NCLT Order. SBI proposed to set aside a capped amountof INR 1,000 Crore for operational creditors (without prejudiceto their right to appeal). He requested that a resolution to thateffect may be voted upon.

The RP requested the SBI representative to clarify if theproposed amount of INR 1,000 Crore would be over and abovethe INR 196 Crore which is already included in the ResolutionPlan for operational creditors. The SBI representative confirmedthat the same would be over and above the current proposal, A

B

C

D

E

F

G

H

Ahowever this additional amount will be capped to INR 1,000crores.”

Under the caption “discussion on the suggestions of the Hon’bleNCLT in relation to distribution of amounts proposed to be paid tofinancial creditors”, the minutes of the meeting reflect that theBCommittee of Creditors had sought for and obtained the opinion ofretired Justice B.N. Srikrishna. This opinion dated 23.03.2019 statedas follows:

“In view of this peculiar situation, where a financial creditor hasadvanced money to the corporate debtor assessing theCcommercial risk and covers his risk by a charge on the assetsof the corporate debtor, there can be no question of his beingentitled to the liquidation value or any other fixed value towardshis debt. In any event, the plan formulated by the resolutionapplicant, has to be placed before the COC for its final approval.It is at that juncture the commercial wisdom of lenders formingDthe COC comes into play and they are entitled to take a call oneither to approve or not to approve the resolution plan which theFRP has put forward before the COC for its approval. In myview, therefore, the Approved Resolution Plan would be fullyjustified in classifying between secured and unsecured financialEcreditor, and also according to the value of their securities andapportioning the amounts payable to them in the best mannerwhich is considered reasonable. I might add here that irrespectiveof what the RP considers as reasonable, it is always open to theCOC to adjudge the commercial wisdom of the resolution planwhile approving it. As pointed out by the Supreme Court in K.FSashidhar vs Indian Overseas Bank & Ors. (Civil Appeal No.10673 of 2018) such commercial decision of the COC is notsubject to appeal under the Code.

C

D

E

In the premises, I am of the opinion that SCB was differentlyplaced than other financial creditors in view of the fact it did nothave any charge or security on the project assets but hadadvanced a large amount of loan amounting to Rs.3000 croreson the basis of the pledge over the shares of an offshorecompany and a corporate guarantee extended by the CorporateDebtor. The resolution plan as finally approved by COC was fullyjustified in treating SCB as differently placed based on the cogent G

H

and intelligible differentia that is apparent from the facts of thecase. I see nothing in the provisions of the Code of theRegulations which would militate against the decision taken bythe COC.

I might add here that the commercial wisdom of the lenders whoare voting for the resolution of the COC is evidenced by the factthat they had created securities on the project assets of theCorporate Debtor after assessing the commercial risk involved.In the case of SCB, however, there seems to have been grossunder security for the large amount of Rs.3000 crores by merelyseeking a corporate guarantee from the Corporate Debtor alongwith a charge only on the shares of the offshore company heldby the Corporate Debtor, wherein the liquidation value of suchshares is a mere Rs.60.71 crores. In fact, in view of the factsituation, I find it hard to understand whether SCB can really betreated as a secured creditor in the first place. I am of theopinion that even if the corporate guarantee were to be enforced,SCB would at best stand as a secured creditor only to the extentof the value of the shares of the offshore company as on thedate of enforcement of the guarantee and as an unsecuredcreditor with respect to the rest of the loan advanced by it. Thisis an equally valid consideration which might have moved theCOC while approving the resolution plan by which the ultimatediscretion for distribution is left to the COC with a declarationthat such allocation to the financial creditors will be binding onall stake holders, which also would include SCB.

xxx xxx xxx

xxx xxx xxx

In the facts and circumstances, I am of the opinion that themanner in which the resolution plan was formulated and approvedby the overwhelming majority of 92.24% of the voting creditors,is not only perfectly justified but is also equitable. As theSupreme Court has pointed out in Swiss Ribbons (supra),“equitable” does not mean equal distribution; it means distributionwhich does justice to every stakeholders involved in the process.In my opinion, mere equal distribution would definitely do injusticeto the large majority of 92.24% shareholders who in theircommercial wisdom had ensured that the security was createdon project assets, while SCB was content with creating a charge A

BC

D

E

F

G

H

A

B

C

D

E

F

G

H

only on the shares of the offshore company and seeking acorporate guarantee from the Corporate Debtor.”

88. The aforesaid opinion was shared with all Committee ofCreditors members including Standard Chartered Bank. Importantly, theminutes record:

“At this point, the representative from Canara Bank stated thathe requires clarity on the following questions before he canconsider the revised apportionment to SCB: (a) Whether anyNOCs were taken from the lenders before taking corporateguarantee, as it is a financial covenant in the sanctions of thelenders? (b) When SCB had funded Essar Steel Offshore Ltd.(ESOL), whether SCB had not taken security of Trinity coalmines as collateral, and the cash flows and credentials from theassets as security? (c) What is the end-use of the loan and wasthat end-use ensured? At what stage is the project? Were thefunds really invested in the project?

xxx xxx xxx

The representatives of SCB raised issue of valuation andmentioned that value of above INR 24 crores of ESOL shareshas not been estimated appropriately and is erroneous. The valuehas been estimated based on desktop valuation and the valuerhas not considered valuation of underlying assets. A valuationreport of equity of Trinity was shared by RP after receipt of samefrom Corporate Debtor which shows value in excess of USD600 mn.

xxx xxx xxx

Further, the representatives of EARC added that they requiredclarify as to whether the underlying loans has been enforcedagainst the principal borrower and whether any money has beenrecovered from the principal borrower. SCB representativereplied that these questions were not relevant at this time andthey were choosing not to answer these questions. SBIrepresentative pointed out that these questions have been raisedearlier and SCB has never replied to these queries.

xxx xxx xxx

After several requests of the lenders, it was noted that SCBdeclined to share the documents and did not answer any of thequestions as asked by the members of the CoC stating that thesame were irrelevant at this stage.

xxx xxx xxx

ICICI Bank also stated that it should be recorded that SCBrejected offer of INR 200 crores was not considered by SCB.The representative of SBI mentioned that the proposal offeredby ICICI Bank in its individual capacity and not by other lenders.The representative of SCB mentioned it is evident that the offerwas only hypothetical.

It was also suggested by EARC that revised distribution to SCBmatter as per NCLT Order should also be voted upon and theother lenders concurred with the same.”

Finally, the allocation of INR 1,000 crore extra to operationalcreditors was approved by a majority of 70.73% of the Committee ofCreditors.

89. Given the aforesaid facts, Shri Sibal’s submissions on behalfof Standard Chartered Bank, that the offer made by ArcelorMittal ofpayment of INR 42,000 crores as upfront in order to pay 100% principaloutstanding of secured financial creditors of the corporate debtor cannotbe accepted. Given that Standard Chartered Bank was reclassified asa secured financial creditor of the corporate debtor only on 10.09.2018and that the aforesaid upfront payment of INR 42,000 crores wouldinclude the principal amount payable to Standard Chartered Bank aswell, we have seen how in the course of negotiation, the vast majorityof financial creditors have ultimately decided that Standard CharteredBank will only get an amount based on its security interest, which wasaccepted by ArcelorMittal. Shri Sibal also argued that the final resolutionplan ultimately offered a sum of INR 39,500 crores instead of INR42,000 crores, being a minimum upfront payment from which it waspossible to negotiate upwards but not downwards. We cannot arrive atthe conclusion that the acceptance of the resolution plan by the majorityof the Committee of Creditors should be set aside on this score, interalia, for the reason that Shri Sibal assured us that he was not attackingthe acceptance of the revised plan but only distribution of amounts A

B

C

D

E

F

G

H

Apayable under the said plan. This being so, it is also not possible to acceptthe submission of Shri Sibal, that “feasibility and viability” of a resolutionplan will not include distribution of the amount of debt under the saidplan. It is also not possible to accept Shri Sibal’s submission that theresolution plan must itself provide for distribution inter se betweensecured financial creditors. It is enough that under the Code and theBRegulations, the resolution plan provides for distribution of amountspayable towards debts based upon a classification of various types ofcreditors. This both the original plan as well as the negotiated plan ofArcelorMittal have already done, as has been seen by us hereinabove,both plans containing the amount to be paid to workmen separately,Coperational creditors of INR 1 crore and less separately, operationalcreditors of INR 1 crore and over separately and financial creditors,subdivided into secured and unsecured as sub-classes, separately. Allthat was left for distribution by ArcelorMittal was distribution inter sebetween secured financial creditors which was then done by a majorityof 92.24%, as has been seen above based upon the value of theirDrespective security interests. Therefore, the allegation that theCommittee of Creditors relieved ArcelorMittal from the solemn offermade before the Supreme Court by reducing the offer amount of INR42,000 crores by INR 2,500 crores so that ArcelorMittal could acquirethe debts of OSPIL, is again a matter for negotiation being a businessEdecision taken by the Committee of Creditors with ArcelorMittal. Inany case ultimately INR 35,000 crores was upped to INR 42,000 crores,it being made clear in the final resolution plan that upfront payment ofINR 42,000 crores is a committed amount, even if working capitaladjustment turns out to be below INR 2,500 crores.

F90. Shri Sibal also made an alternative submission that on thefacts of this case, a half-way house can be found so that StandardChartered Bank would get payment of something more above the valueof its security interest. The argument is that, assuming, whilst denying,that classification amongst secured financial creditors is permissible,

such classification should be on the liquidation value of the securityGenjoyed by the creditor and the balance distributed to all securedfinancial creditors pro-rata. This methodology of distribution has,according to him, been applied in State Bank of India v. OrissaManganese and Minerals Ltd. CA(IB) No. 391/KB/2018, approvedby the NCLT and not disturbed by the NCLAT. Therefore, it is arguedHthat, applying the aforesaid classification, the average liquidation value of the security in the instant case, is to be as per the report of DUFF& Phelps and RBSA, being a sum of INR 15,838 crores. This, accordingto him, is the amount required to be distributed to the secured financialcreditors according to the value of their respective security interests(viz. first charge, second charge, subservient charge, residuary charge,etc.) and the balance to be distributed pro-rata amongst all financialcreditors irrespective of their security. The sum of INR 42,000 croresoffered by ArcelorMittal would therefore, according to him, be a sumof INR 15,838 crores paid over to the secured financial creditorsaccording to the value of their security and the balance amount of INR26,162 crores would then have to be distributed amongst all financialcreditors on a pro-rata basis.

91. What is important to note is that when one reads theabovementioned judgment, it is a majority of 66% of the Committee ofCreditors who has exercised the discretion vested in it under the Codein this particular manner, which has then correctly not been disturbedby the NCLT and NCLAT. Far from helping Shri Sibal’s client, theprinciple that is applied in such a case is that ultimately it is thecommercial wisdom of the requisite majority of the Committee ofCreditors that must prevail on the facts of any given case, which wouldinclude distribution in the manner suggested in Orissa Manganese(supra). It is, therefore, not possible to accept the argument that theAdjudicatory Authority and consequently the Appellate Authority wouldbe vested with the discretion to apply what was applied by theCommittee of Creditors in the Orissa Manganese case (supra). Thissubmission is also devoid of merit and is, therefore, rejected.

92. The other argument of Shri Sibal that Section 53 of the Codewould be applicable only during liquidation and not at the stage ofresolving insolvency is correct. Section 30(2)(b) of the Code refers toSection 53 not in the context of priority of payment of creditors, butonly to provide for a minimum payment to operational creditors.However, this again does not in any manner limit the Committee ofCreditors from classifying creditors as financial or operational and assecured or unsecured. Full freedom and discretion has been given, ashas been seen hereinabove, to the Committee of Creditors to so classifycreditors and to pay secured creditors amounts which can be basedupon the value of their security, which they would otherwise be able torealise outside the process of the Code, thereby stymying the corporateresolution process itself.

AB

C

DE

F

G

H

A

AB

C

DE

F

G

H

A

A93.The other argument based upon serious conflict of interestbetween secured and unsecured financial creditors, as the majority mayget together to ride roughshod over the minority, is an argument whichflies in the face of the majority of financial creditors being givencomplete discretion over feasibility and viability of resolution plans, whichincludes the manner of distribution of debts that is contained in them,Bsubject to following the provisions of the Code relating, inter alia, todealing with the interests of all stakeholders including operationalcreditors. The Committee of Creditors does not act in any fiduciarycapacity to any group of creditors, as is sought to be suggested by ShriSibal. On the contrary, it is to take a business decision based upon groundCrealities by a majority, which then binds all stakeholders, includingdissentient creditors. It is important to note that the original thresholdrequired by way of majority was 75%. It is during the working of theCode that this was found to be unrealistic and therefore reduced to66% - see the amendments made to Section 28(3) and 30(4) of theCode by the Insolvency and Bankruptcy Code (Second Amendment)DAct of 2018. For all these reasons therefore, it is not possible to acceptShri Sibal’s arguments.

94. The NCLAT judgment which substitutes its wisdom for thecommercial wisdom of the Committee of Creditors and which alsodirects the admission of a number of claims which was done by theEresolution applicant, without prejudice to its right to appeal against theaforesaid judgment, must therefore be set aside.

95. So far as Civil Appeal No. 6409 of 2019 is concerned, wehave perused paragraphs 70 to 76 of the impugned NCLAT judgmentto the effect that the cheques issued by the corporate debtor due to itsFpayment obligation towards Bhandar Power Limited were not issuedwith a view to secure any payment obligation of the principal borroweri.e. EPGL, is a finding of fact which dislodges the claim of this appellantto be regarded as a financial creditor. We find no infirmity in theaforesaid finding. This appeal is consequently dismissed.G

96. So far as Civil Appeal Diary No. 36838 is concerned, wehave perused the relevant documents and paragraphs 63 and 64 of theimpugned NCLAT judgment and find that the NCLAT has erredinasmuch as it has added the claim of this Appellant to the tune of INR861.19 crore despite the fact that the claim had already been admittedHby the resolution professional thereby resulting in a double counting of the debt of this Appellant. This being the position, we find it necessaryto set aside this part of the impugned NCLAT judgment as well.

97. So far as Civil Appeal No. 6266 of 2019, we have perusedparagraphs 78 to 81 of the impugned NCLAT judgment and find noreason to dislodge the finding of the NCLAT that the claim was filedby the Appellant after the approval of the resolution plan. However,the NCLAT’s finding that the said claim is subject to arbitration andthat it was open for the Appellant to pursue the matter in terms ofSection 60(6) of the Code deserves to be aside in terms of this judgment.This Appeal is consequently dismissed.

98. So far as Civil Appeal No. 6269 of 2019 is concerned, wehave perused paragraphs 83, 84 and 196 of the impugned NCLATjudgment and find force in the contention of the Appellant that therehas been an error in the impugned NCLAT judgment in as much as itnotes the claim amount, as admitted, as being a sum of INR 124.88crores, but later in the same judgment notes the said amount as INR2.47 crores based on a chart submitted by the resolution professional.This chart submitted by the resolution professional specifies the amountof INR 2.47 crore (added after the NCLT judgment dated 08.03.2019),which is in addition to the amount of INR 124.88 crores already admittedby the resolution professional. Therefore, the NCLAT has erred innoting INR 2.47 crore amount as the amount of the Appellant’s claim,and this part of the judgment also deserves to be set aside. Thus, theclaim of the appellant shall be the claim as admitted and registered bythe resolution professional. This apart, we find no merit in the submissionof the Appellant with respect to the sum of INR 121.72 crores as thesame has been rightly rejected by the NCLAT in view of the fact thatthe said claim was filed after the completion of the CIRP period.However, the NCLAT’s judgment inasmuch as it left it open for theAppellant to pursue the matter in terms of Section 60(6) of the Codedeserves to be aside in terms of this judgment. This Appeal is thus partlyallowed.

99. So far as Civil Appeal No. 7266 of 2019 and Civil AppealNo. 7260 of 2019 are concerned, the resolution professional has rejectedthe claim of the Appellants on the ground of non-availability of dulystamped agreements in support of their claim and the failure to furnishproof of making payment of requisite stamp duty as per the Indian StampAct despite repeated reminders having been sent by the resolution AB

CD

E

F

G

H

Aprofessional. The application filed by the Appellants before the NCLTcame to be dismissed by an order dated 14.02.2019 on the ground ofnon-prosecution. The subsequent restoration application filed by theappellants then came to be rejected by the NCLT through judgmentdated 08.03.2019 on two grounds: one, that the applications could notbe entertained at such a belated stage; and two, that notwithstandingBthe aforementioned reason, the claim had no merit in view of the failureto produce duly stamped agreements. The impugned NCLAT judgment,at paragraphs 93 and 94, upheld the finding of the NCLT and theresolution professional. In view of these concurrent findings, the claimof the Appellants therefore requires no interference. Further, theCsubmission of the Appellants that they have now paid the requisite stampduty, after the impugned NCLAT judgment, would not assist the caseof the Appellants at this belated stage. These appeals are thereforedismissed.

100. So far as Writ Petition (Civil) No. 1064 of 2019 is concerned,Dwe have perused the relevant documents and paragraph 36 of theimpugned NCLAT judgment and find force in the contention of the WritPetitioner that the NCLAT has wrongly noted that the claim amountwas notionally admitted by the resolution professional at INR 1 only.The resolution professional has admitted the claim of the Writ PetitionerEto a tune of INR 17.09 crore and the same is recorded in the list ofcreditors prepared by the resolution professional. In view of the same,this part of the NCLAT judgment is thus erroneous and the claim shallbe the claim as admitted and registered by the resolution professional.The Writ Petition is thus allowed to this extent.F

101. So far as Writ Petition (Civil) No. 1049 of 2019 isconcerned, the Petitioner is admittedly the operational creditor of oneWind World India Ltd whose CIRP proceedings are pending before theNCLT, Ahmedabad. The Petitioner has inter alia sought for permissionto raise various issues arising out of the facts of its own case (whichGhas been raised before us herein) in the matter pending before theNCLT. In view of the fact that this judgment has not opined on themerits of the case of the Writ Petitioner pending before the NCLT, itis open to the Writ Petitioner to raise all contentions as permissible underthe applicable law before the NCLT in the pending proceedings. ThisWrit Petition is thus allowed to this extent.H

102. So far as Dakshin Gujarat Vij Co. (Respondent No. 11 inCivil Appeal Diary No. 24417 of 2019), State Tax Officer (RespondentNo. 12 in Civil Appeal Diary No. 24417 of 2019), Gujarat EnergyTransmission Corporation Ltd. (Respondent No. 17 in Civil Appeal DiaryNo. 24417 of 2019) and Indian Oil Corporation Ltd. (Respondent No.18 in Civil Appeal Diary No. 24417 of 2019) are concerned, theresolution professional admitted the claim of the abovementionedrespondents notionally at INR 1 on the ground that there were disputespending before various authorities in respect of the said amounts.However, the NCLT through its judgment dated 08.03.2019 directedthe resolution professional to register the entire claim of the saidrespondents. The NCLAT in paragraphs 43 and 196 of the impugnedjudgment upheld the order passed by the NCLT as aforesaid andadmitted the claim of the abovementioned respondents. We thereforehold that this part of the impugned judgment deserves to be set asideon the ground that the resolution professional was correct in onlyadmitting the claim at a notional value of INR 1 due to the pendencyof disputes with regard to these claims.

103. The appeals filed by the Committee of Creditors of EssarSteel Limited and other Civil Appeals are allowed. The impugnedNCLAT judgment is set aside, except insofar as Civil Appeal No. 6409of 2019, Civil Appeal No. 7266 of 2019, Civil Appeal No. 7260 of 2019are concerned, which are dismissed. Insofar as Civil Appeal No. 6266of 2019 and Civil Appeal No. 6269 of 2019 is concerned, the Appealsare partly allowed in terms of this judgment. The Writ Petitions aredisposed of in terms of the judgment. It is made clear that the CIRP ofthe corporate debtor in this case will take place in accordance withthe resolution plan of ArcelorMittal dated 23.10.2018, as amended andaccepted by the Committee of Creditors on 27.03.2019, as it has providedfor amounts to be paid to different classes of creditors by followingSection 30(2) and Regulation 38 of the Code.

Ankit Gyan

Appeals and writ petitions disposed of.

A

B

C

D

E

F

G

H