PRATAP TECHNOCRATS (P) LTD. & ORS. versus MONITORING COMMITTEE OF RELIANCE INFRATEL LIMITED & ANR. on 10 August 2021

938

[2021] 8 S.C.R.

PRATAP TECHNOCRATS (P) LTD. & ORS.

A

v.

MONITORING COMMITTEE OF RELIANCE INFRATELLIMITED & ANR.

(Civil Appeal No 676 of 2021)

B

AUGUST 10, 2021

[DR DHANANJAYA Y CHANDRACHUD ANDM R SHAH, JJ.]

Insolvency and Bankruptcy Code, 2016:

C

ss. 30(1), 30(2), 31, 53 –Corporate Insolvency ResolutionProcess (CIRP) – Approval of resolution plan – Initiation of CIRPof Corporate Debtor – Resolution applicant declared successful –Resolution plan approved with 100 per cent voting share of theCommittee of Creditors(CoC) and subsequently approved by NCLT

D

– Appellants-Operational creditors challenged the order of NCLTapproving the resolution plan on the ground that the claim of theappellants had not received a fair and equitable treatment – NCLATupheld the order of NCLT holding that the equitable treatment canbe claimed only by similarly situated creditors – On appeal, held:EDecision to approve a resolution plan is entrusted to the CoC –Jurisdiction of the Adjudicating Authority and the AppellateAuthority cannot extend into entering upon merits of a businessdecision made by a requisite majority of the CoC in its commercialwisdom – Nor there is a residual equity based jurisdiction in theAuthorities to interfere in the decision of CoC – Commercial wisdomFof the CoC in its collegial capacity is, thus, not justiciable –Equitable treatment of creditors is equitable treatment only withinthe same class – Financial creditors belong to a class distinct fromoperational creditors – Fair and equitable‘ norm does not meanthat financial and operational creditors must be paid the sameGamounts in any resolution plan before it can pass muster – On facts,resolution plan duly approved by a requisite majority of the CoC inconformity with s. 30(4) – Exclusion of some of the financial creditorsfrom the CoC of no consequence, once the plan approved by a 100per cent voting share of the CoC – Furthermore, value of preferenceshares included in calculating the liquidation value of the CorporateH

PRATAP TECHNOCRATS (P) LTD. v. MONITORING COMMITTEE OFRELIANCE INFRATEL LTD.

Debtor; and that the liquidation value due to the unsecuredoperational creditors would remain nil – Jurisdiction of theAdjudicating Authority was confined by the provisions of s. 31(1)to determine whether the requirements of s. 30(2) have been fulfilledin the plan as approved by the CoC – Thus, the decisions of NCLTand NCLAT in conformity with law.

ss. 31(1), 30(2) – Resolution plan – Approval by Committeeof Creditors – Jurisdiction of NCLT and NCLAT – Held: Under theprovisions of IBC, neither the Adjudicating Authority-NCLT nor theAppellate Authority-NCLAT have an unchartered jurisdiction inequity – Jurisdiction arises within and as a product of a statutoryframework.

Purpose and objective of – Held: IBC is a complete code initself – It defines fair and equitable treatment by constituting acomprehensive framework within which the actors partake in theinsolvency process – Process envisaged by the IBC is a directrepresentation of certain economic goals of the Indian economy –To submit that a residuary jurisdiction must be exercised to alter thedelicate economic coordination envisaged by the statute, would doviolence on its purpose and would be an impermissible exercise ofthe Adjudicating Authority‘s power of judicial review – Thus, oncethe requirements of the IBC have been fulfilled, the AdjudicatingAuthority and the Appellate Authority duty bound to abide thestatutory provisions.

Insolvency and Bankruptcy laws: Resolution/reorganizationplans – Challenge to, on the grounds of fairness and equity byforeign jurisdictions vis-a-vis Indian insolvency regime – Discussed– United Kingdom‘s Insolvency Act, 1986 – United States‘ USBankruptcy Code – Indian Insolvency and Bankruptcy Code, 2016.

Dismissing the appeal, the Court

Conclusion

HELD:1.1 The resolution plan was approved by the CoC,in compliance with the provisions of the IBC. The jurisdiction ofthe Adjudicating Authority under Section 31(1) of the IBC is todetermine whether the resolution plan, as approved by the CoC,complies with the requirements of Section 30(2). The NCLT iswithin its jurisdiction in approving a resolution plan which accordswith the IBC. There is no equity-based jurisdiction with the NCLT,under the provisions of the IBC. [Para 22][965-E-F]

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A1.2 Section 30(1) envisages the submission of a resolutionplan by a resolution applicant. On the submission of the resolutionplan, the Resolution Professional is required to examine it andto confirm, in terms of sub-Section (2) of Section 30, that the planabides by the statutory requirements spelt out in clauses (a) to(f). The RP has to present to the CoC, for its approval, suchBresolution plans which conform to the conditions specified insub-Section (2) of Section 30. The approval of the resolution planis a statutory function which is entrusted to the CoC, undersub-Section (4) of Section 30. The CoC may approve a resolutionplan with a voting percentage of not less 66 per cent of the votingCshares of financial creditors after considering its feasibility andviability; the manner of distribution proposed having regard tothe order of priority amongst creditors laid down in Section 53(1)of the IBC, including priority and value of the security interest ofthe secured creditors; and such other requirements as may bespecified by the Insolvency and Bankruptcy Board of India. InDother words, the decision to approve a resolution plan is entrustedto the CoC. [Para 23, 24][965-G-H; 966-A-C]

1.3 The function of the Adjudicating Authority under Section31 is to determine whether the resolution plan as approved bythe CoC under Section 30(4) meets the requirements underESection 30(2). If the Adjudicating Authority is satisfied that theresolution plan, as approved, meets the requirements undersub-Section (2) of Section 30, it shall by order approve theresolution plan which shall then be binding on the CorporateDebtor and all stakeholders, including those specifically speltFout. [Para 25][967-A-B]

1.4 The jurisdiction which has been conferred upon theAdjudicating Authority in regard to the approval of a resolutionplan is statutorily structured by sub-Section (1) of Section 31.The jurisdiction is limited to determining whether theGrequirements which are specified in sub-Section (2) of Section30 have been fulfilled. This is a jurisdiction which is statutorily-defined, recognised and conferred, and hence cannot be equatedwith a jurisdiction in equity, that operates independently of theprovisions of the statute. The Adjudicating Authority as a body H

owing its existence to the statute, must abide by the nature andextent of its jurisdiction as defined in the statute itself. Thejurisdiction of the Appellate Authority under Section 61(3), whileconsidering an appeal against an order approving a resolutionplan under Section 31, is similarly structured on specified grounds.[Para 26, 27][967-E-G]

1.5 There are specific requirements which have been speltout in sub-Section (2)(b) of Section 30, as regards the operationalcreditors. The amount which is payable to the operationalcreditors towards their debts must at least be either what isprovided in sub-clause (i) or sub-clause (ii) of clause (b), whicheveris higher. Sub clause (i) refers to the amount paid to theoperational creditors in the event of a liquidation under Section53. Sub-clause (ii) refers to the amount that would have beenpaid to the operational creditors, if the amount to be distributedunder the resolution plan was distributed in accordance with theorder of priority under Section 53(1)(b), which provides for awaterfall mechanism. [Para 28][968-D; 969-A-B]

1.6 These provisions indicate that the ambit of theAdjudicating Authority is to determine whether the amount thatis payable to the operational creditors under the resolution planis consistent with the above norms which have been stipulated inclause (b) of sub-clause (2) of Section 30. Significantly, Explanation-1 to clause (b), which is clarificatory in nature, provides that adistribution which is in accordance with the provisions of theclause shall be fair and equitable to such creditors. Fair andequitable treatment, in other words, is what is fair and equitablebetween the operational creditors as a class, and not betweendifferent classes of creditors. The statute has indicated that oncethe requirements of Section 30(2)(b) are fulfilled, the distributionin accordance with its provisions is to be treated as fair andequitable to the operational creditors. [Para 29][969-C-E]

1.7 The entitlement of the operational creditors beingdefined by sub-clause (b) of sub-section (2) of Section 30, theclarification contained in Explanation-1 must apply. As such, aslong as the payment under the resolution plan is fair and equitable AB

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Aamongst the operational creditors as a class, it satisfies therequirements of Section 30(2)(b). [Para 30][969-E-F]

1.8 The consistent principle of law is that neither theAdjudicating Authority nor the Appellate Authority can enter intothe commercial wisdom underlying the approval granted by theBCoC to the resolution plan. The commercial wisdom of the CoCin its collegial capacity is, hence, not justiciable. [Para 31][970-B-C]

1.9 Once the Adjudicating Authority is satisfied that theCoC has applied its mind to the statutory requirements spelt outCin sub-Section (2) of Section 30, it must then pass the resolutionplan. The equitable treatment of creditors is equitable treatmentonly within the same class. Financial creditors belong to a classdistinct from operational creditors. The UNCITRAL LegislativeGuide makes it clear that equitable treatment is only of similarlysituated creditors. The fair and equitable‘ norm does not meanDthat financial and operational creditors must be paid the sameamounts in any resolution plan before it can pass muster. [Para37, 38][973-G-H; 974-D]

1.10 The jurisdiction of the Adjudicating Authority and theAppellate Authority cannot extend into entering upon merits of aEbusiness decision made by a requisite majority of the CoC in itscommercial wisdom. Nor is there a residual equity basedjurisdiction in the Adjudicating Authority or the AppellateAuthority to interfere in this decision, so long as it is otherwisein conformity with the provisions of the IBC and the RegulationsFunder the enactment. [Para 39][975-B-C]

1.11 Certain foreign jurisdictions allow resolution/reorganization plans to be challenged on grounds of fairness andequity. One of the grounds under which a company voluntaryarrangement can be challenged under the United Kingdom‘sGInsolvency Act, 1986 is that it unfairly prejudices the interests ofa creditor of the company. The United States‘ US BankruptcyCode provides that if a restructuring plan has to clamp down on adissenting class of creditors, one of the conditions that it shouldsatisfy is that it does not unfairly discriminate, and is fair and H

equitable. However, under the Indian insolvency regime, itappears that a conscious choice has been made by the legislatureto not confer any independent equity based jurisdiction on theAdjudicating Authority other than the statutory requirements laiddown under sub-Section (2) of Section 30 of the IBC. [Para40][975-C-F]

1.12 The IBC is a complete code in itself. It defines what isfair and equitable treatment by constituting a comprehensiveframework within which the actors partake in the insolvencyprocess. The process envisaged by the IBC is a directrepresentation of certain economic goals of the Indian economy.It is enacted after due deliberation in Parliament and accordsrights and obligations that are strictly regulated and coordinatedby the statute and its regulations. To argue that a residuaryjurisdiction must be exercised to alter the delicate economiccoordination that is envisaged by the statute would do violenceon its purpose and would be an impermissible exercise of theAdjudicating Authority‘s power of judicial review. Hence, oncethe requirements of the IBC have been fulfilled, the AdjudicatingAuthority and the Appellate Authority are duty bound to abide bythe discipline of the statutory provisions. Neither the AdjudicatingAuthority nor the Appellate Authority have an uncharteredjurisdiction in equity. The jurisdiction arises within and as aproduct of a statutory framework. [Para 41][976-B-D, F-G]

2.1 The submission that there has been a failure to maximisethe value of the assets and to balance the interests of thestakeholders has not been substantiated by any concrete materialbefore the Court, apart from the reference to the preferenceshares which has already been clarified. Whether the interest ofall stakeholders, including the operational creditors, has beenadequately balanced has to be determined within the four cornersof the statutory provisions of the IBC. It must be borne in mindthat the jurisdiction of the Adjudicating Authority is circumscribedby the terms of the provisions conferring the jurisdiction. In theinstant case, the approved resolution plan has in fact providedfor the payments to operational creditors, the percentage of A

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Arecovery being 19.62 per cent. On the other hand, the paymentto financial creditors is 10.32 per cent. [Para 36][973-D-F]

2.2 In the instant case, the resolution plan has been dulyapproved by a requisite majority of the CoC in conformity withSection 30(4). Whether or not some of the financial creditors wereBrequired to be excluded from the CoC is of no consequence,once the plan is approved by a 100 per cent voting share of theCoC. The jurisdiction of the Adjudicating Authority was confinedby the provisions of Section 31(1) to determine whether therequirements of Section 30(2) have been fulfilled in the plan asapproved by the CoC. As such, once the requirements of theCstatute have been duly fulfilled, the decisions of the AdjudicatingAuthority and the Appellate Authority are in conformity with law.[Para 42][977-A-C]

Committee of Creditors of Essar Steel India Limited v.Satish Kumar Gupta (2020) 8 SCC 531 : [2019] 16DSCR 275; Swiss Ribbons (P) Ltd. v. Union of India(2019) 4 SCC 17 : [2019] 3 SCR 535; K Sashidhar v.India Overseas Bank (2019) 12 SCC 150 : [2019] 3SCR 845 – relied on.

Maneka Gandhi v. Union of India (1978) 1 SCC 248 :E[1978] 2 SCR 621 – referred to.

3.1 As regards, the inclusion of the realisable value fromthe sale of preference shares held by its subsidiary-RB Limited,in RR Limited, in determining the liquidation value of theCorporate Debtor; it has been clarified in the affidavit filed byFthe insolvency professional, that under the Insolvency andBankruptcy Code and its regulations, the RP appointed tworegistered valuers in accordance with Regulation 27 of theInsolvency and Bankruptcy Board of India (Insolvency ResolutionProcess for Corporate Persons) Regulations, 2016 to carry outGthe valuation of the Corporate Debtor and to determine theliquidation value and fair value in accordance with Regulation35(1). These values were placed before the CoC, in accordancewith Regulation 35(2) of the CIRP Regulations, upon receipt ofthe resolution plans. The submission of the appellants that the H

realisable value from these preference shares is excluded fromthe liquidation value of the Corporate Debtor has been rebuttedby a specific clarification contained in the MonitoringCommittee‘s affidavit, which was filed in these proceedings. As amatter of fact, the realisable value for the Corporate Debtor onaccount of any proceeds realised from the preference shares heldby its subsidiary, is included in the determination of the liquidationvalue of the Corporate Debtor. This statement in the affidavit isduly supported by relevant excerpts from the valuation reports,issued by the appointed valuers. Therefore, the submission thatthe value of preference shares has not been included in calculatingthe liquidation value of the Corporate Debtor is factually incorrect.[Para 18][962-C-G; 964-B-C]

3.2 As regards the liquidation value, it has been clarifiedthat the liquidation value due to the unsecured operationalcreditors would remain nil in all scenarios, including if the corpusof Rs 800 crores is separately considered. The liquidation valueof the Corporate Debtor is Rs 4339.58 crores. The amount beinginfused by the successful resolution applicant is Rs 3720 crores.The amount of Rs 800 crores is a value ascribed under theapproved resolution plan to be realised by the Corporate Debtor,pursuant to the remittance of proceeds in respect of thepreference shares. Hence, cumulatively, the value beingdistributed under the approved valuation plan is Rs 4520 crores.It has been clarified that even if the liquidation value of therealisable value of the preference shares were to be consideredin isolation for distribution amongst all the operational creditors,in terms of the priority contained in Section 53(1), the liquidationvalue due to the appellants would still remain at nil. [Para 19][964-C-F]

3.3 As regards the order of the NCLT in Doha Bankproceedings, the order of the NCLT in the application which wasmoved by Doha Bank for the removal of certain financial creditorsfrom the CoC, has no bearing on the status of the approval of theresolution plan for the reason that it had received a unanimousapproval with the 100 per cent voting share in the CoC. Theexclusion of certain financial debts and hence, the exclusion ofcertain financial creditors from the CoC, pursuant to the order of AB

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[2021] 8 S.C.R.

Athe NCLT in the Doha Bank proceedings, has no practicalimplication since the resolution plan continues to be approvedwith a 100 per cent majority even after their exclusion. The orderof the NCLT in the Doha Bank proceedings did not provide forthe inclusion of any new financial creditors. The consequence ofthe Doha Bank order would be that the inter se distributionBbetween the financial creditors would be affected, which has noconsequence for the operational creditors. In the affidavit whichhas been filed by the Monitoring Committee in pursuance to theorder of the 10 March 2021 of this Court, it has also been statedso.[Para 20, 21][964-F-H; 965-A-B]

C

Case Law Reference

CIVIL APPELLATE JURISDICTION: Civil Appeal No.676 ofE2021.

From the Judgment and Order dated 04.01.2021 of the NationalCompany Law Appellate Tribunal, New Delhi in CA (AT) (Ins) No.1134of 2020.

FDushyant Dave, Sr. Adv., Rajat Sehgal, Tapan Masta,Mrs. Vandana Anand, Gautam Swarup, Mandavya Kapoor, KartikeyaJaiswal, Ms. Gunjan Jindal, Advs. for the Appellants.

Neeraj Kishan Kaul, Sr. Adv., Saurav Panda, Vaijayant Paliwal,Ms. Charu Bansal, Ms. Prabh Simrran Kaur, Ms. Ankita Mandal, S. S.GShroff, Advs. for the Respondents.

The Judgment of the Court was delivered by DR JUSTICE DHANANJAYA Y CHANDRACHUD, J.

Index

A The Appeal

B Corporate Resolution Insolvency Process C Approval of Resolution Plan D Challenge before Appellate Tribunal E Submissions F Analysis F.1 Clearing the ground F.2 Jurisdiction to approve a Resolution Plan F.3 Exercise of jurisdiction G Conclusion A The Appeal

1. This appeal arises under Section 62 of the Insolvency andBankruptcy Code[1], against a judgment the dated 4 January 2021 of theNational Company Law Appellate Tribunal[2]. Reliance Infratel Limited[3]is the corporate debtor. The appellants are operational creditors. By itsorder dated 3 December 2020, the National Company Law Tribunal,Mumbai[4], approved the resolution plan formulated in the course of theinsolvency resolution process[5 ]of the Corporate Debtor. The NCLAThas upheld the order.

B Corporate Resolution Insolvency Process

2. The CIRPof the Corporate Debtor was initiated by an orderdated 15 May 2018 of the NCLT. An interim resolution professional[6]was appointed on 18 May 2018. The IRP issued a public announcement 1 IBC

2 NCLAT/Appellate Authority

3 RIL

4 NCLT/Adjudicating Authority

5 CIRP6 IRP

A

B

C

D

E

F

G

H

Aon 21 May 2018 inviting claims from the creditors of the CorporateDebtor. The order of the NCLT admitting the corporate debtor to theCIRP was challenged in appeal, and the order of admission was stayedon 30 May 2018. On 30 April 2019, the NCLAT vacated the stay on theCIRP.The appeal was withdrawn.

B3. The CIRP resumed on 7 May 2019. A fresh publicannouncement was issued by the IRP on 7 May 2019 for inviting claimsfrom creditors.The Committee of Creditors[7 ]was constituted on 24 May2019. On 30 May 2019, the CoC replaced the IRP with Mr. Anish NiranjanNanavaty as the Resolution Professional[8]. This appointment wasconfirmed by the NCLT on 21 June 2019.C

4. During the course of the process, the RP invited ‘Expressionsof Interest’[9 ]from prospective resolution applicants on 15 July 2019.Fifteen EOIs were received, and a provisional list was prepared andfurnished to the CoC on 16 August 2019. A request for resolution plan[10]was then issued to the prospective resolution applicants on 21 AugustD2019, together with an information memorandum and evaluation matrix.With the consent of the CoC, the last date for submission of resolutionplans was extended till 25 November 2019. The RP received resolutionplans from the four prospective resolution applicants:

a) Bharti Airtel Ltd.;E

b) Reliance Digital Platform & Project ServicesLimited, through its division Infrastructure Projects;

c) VFSI Holdings Pte. Ltd.; and

d) UV Asset Construction Company Ltd.F

5. The CoC engaged with the prospective resolution applicantsbetween 2 January 2020 and 2 March 2020, in pursuance of which revisedresolution plans were submitted. At the 16[th] meeting of the CoC held on9 January 2020 (reconvened on 13 January 2020), further discussionswere held and the resolution plan submitted by Reliance Digital PlatformG

7 CoC8 RP

9 EOI

10 RFRPH

and Project Services Limited[11] was taken forward as a preferred resolutionplan on the basis of its “feasibility, viability and implementability”. TheResolution Applicant submitted a revised resolution plan on 13 January2020, and upon due verification of its eligibility under Section 29A of theIBC, was declared a successful resolution applicant at the 19[th] meetingof the CoC held on 2 March 2020. The resolution plan was approvedwith a 100 per cent voting share of the CoC. A letter of intent (“LoI”)was then issued by the RP on 4 March 2020, which the ResolutionApplicant unconditionally accepted on 6 March 2020.

6. The NCLT has indicated the following extensions which weregranted, consistent with the provisions of the IBC, for completing theCIRP:

“5…

i The period of stay between 30.05.2018 and 30.04.2019 wasexcluded from the calculation of the CIRP vide order dated09.05.2019.

ii. Extension of 90 days was granted vide order dated 29.09.2019.TheCIRP thus stood extended from 12.10.2019 to 10.01.2020.

iii. Further exclusion of 24 days was granted from the CIRP periodvideorder dated 07.01.2020, owing to time spent in litigation fromthe date of approval of the Applicant as RP till the date ofpublication of orderconfirming the said appointment.

iv. It was clarified by order dated 24.01.2020 that the RP and theCoC wereat liberty to complete CIRP within 330 days, whichwas expiring on10.03.2020.”

C Approval of Resolution Plan

7. An application was submitted under Section 30(6) of the IBCby the RP, seeking the approval of the resolution plan by the NCLT. TheNCLT discussed the salient aspects of the resolution plan in the courseof its order on the approval application. The financial terms envisaged inthe resolution plan have been tabulated thus:

11 the Resolution Applicant

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APART C

B

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D

E

F

G

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AThe plan envisages the following payments for the insolvencyresolution of the Corporate Debtor as a going concern:

“G. Overall payment under the Plan:

Resolution Plan contemplates following payments for theinsolvencyresolution of the Corporate Debtor as a going concern:

B

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Note-I to the table is as follows:

“Note 1:

Reliance Bhutan Limited (RBL)(wholly owned subsidiary of theCorporate Debtor) holds preference shares in one of the othergroup companies of Reliance Communications Group, i.e. RelianceRealty Limited (RRL), which holds certain real estate assets. RAprovides that:

a.In the event RRL is able to sell its real estate assets for anamount of INR 800 Crore or more, the RA shall cause that amount of INR 800 Crore (less any taxes and transactioncosts) from the value realised from the preference sharesheld by RBL in RRL to be distributed to the ApprovingFinancial Creditors on a pro rata basis to their AdmittedFinancial Debt within 30 days of the completion of the saleand all related approvals.

b.In the event the amount expected to be realised from thesale ofthe real estate assets of RRL is less than INR 800Crore, the RA will purchase the real estate assets of RRLfor INR 800 Crore and said amount of INR 800 Crore (lessany taxes and transaction costs) shall be distributed to theApproving Financial Creditors on a pro rata basis to theirAdmitted Financial Debt, as would be mutually agreedbetween the RA, RRL and the Approving FinancialCreditors.”

8. In the course of deciding upon the approval plan, the NCLTnoted that Doha Bank, which was one of the financial creditors of theCorporate Debtor, had instituted proceedings[12 ]challenging the admissionof the claims of a few other creditors and a proceeding[13 ]to impugn thedecision of the RP to recognize the indirect lenders of the CorporateDebtor as financial creditors. The NCLT noted that the applicationswere pending, but it came to the view that the pendency of these andother applications would not stand in the way of the approval of theresolution plan, particularly since it had been unanimously approved bythe CoC. However, it clarified that the distribution of payments tocreditors, financial or operational, shall be subject to the orders whichare passed in the interim applications, within the ambit of the IBC. In theabove backdrop, the NCLT by its order dated 3 December 2020 approvedthe resolution plan in terms of the following directions:

“14. In view of the discussions and the law thus settled, the instantResolution Plan meets the requirements of Section 30(2) of theCode and Regulations 37, 38, 38(1A) and 39(4) of the Regulations.The Resolution Plan is not in contravention of any of the provisionsof Section 29A of the Code and is inaccordance with law. Thesame needs to be approved.

12 IA 1960 of 2019

13 IA 3055 of 2019

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B

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SUPREME COURT REPORTS

A15. Doha Bank one of the Financial Creditors has filed IA No.1960 of 2019 inter alia, challenging the admission of claims of fewother Creditors and IA No. 3055 of 2019 impugning the decisionof the Resolution Professional recognising the Indirect Lendersof the Corporate Debtor as Financial Creditors. The Applicationsare pending consideration. We are of the considered opinion thatBpendency of these and other Applications would not come in theway of approval or otherwise of the Resolution Plan. More so,when the Resolution Plan has been unanimously approved by theCoC. The distribution of the payments to the Creditors, Financialor Operational, as the case may be, shall be subject to orders toCbe passed in the respective Interim Applications within the ambitof the Code. We are thus inclined to dispose of this Application inthe following terms. Hence ordered.

ORDER

i.The Application be and the same is allowed. The ResolutionDPlan submitted by Reliance Digital Platform & ProjectServices Limited through its division Infrastructure Projectsannexed to the Application is hereby approved. It shallbecome effective from this date and shall form part of thisorder. It shall be binding on the Corporate Debtor, itsEemployees, members, creditors, including the CentralGovernment, any State Government or any local authorityto whom a debt in respect of the payment of dues arisingunder any law for the time being in force is due, guarantorsand other stakeholders involved in the Resolution Plan.

Fii.The distribution of the payments to the Financial Creditorsshall abide by and be subject to the orders passed in IANos. 1960 of 2019 and 3055 of 2019 pending considerationof this Bench. The amount sought to be infused by theResolution Applicant shall be kept in an interest bearingdeposit in any Nationalised Bank till disposal of the saidGApplications.

iii.The approval of the Resolution Plan shall not be construedas waiver of any statutory obligations of the CorporateDebtor and shall be dealt by the appropriate Authorities inaccordance with law. Any waiver sought in the Resolution H

Plan, shall be subject to approval by the Authoritiesconcerned.

A

iv.The Memorandum of Association (MoA) and Articles ofAssociation (AoA) shall accordingly be amended and filedwith the Registrar of Companies (RoC), concerned forinformation and record. The Resolution Applicant, forBeffective implementation of the Plan, shall obtain allnecessary approvals, under any law for the time being inforce, within such period as may be prescribed.

v.Henceforth, no creditors of the erstwhile Corporate Debtorcan claim anything other than the liabilities referred to inCPara 6 supra.

vi.The moratorium under Section 14 of the Code shall ceaseto have effectfrom this date.

vii.The Applicant and the Monitoring Committee shall supervisethe implementation of the Resolution Plan and the ApplicantDshall file status of its implementation before this Authorityfrom time to time, preferably every quarter.

viii.The Applicant shall forward all records relating to theconduct of the CIRP and the Resolution Plan to the IBBIalong with copy of this Orderfor information….”

E

D Challenge before Appellate Tribunal

9. The appellants challenged the decision of the NCLT approvingthe resolution plan in appeal before the NCLAT. The grounds of challengeof the appellants were:

F

(i) The appellants were kept unaware of the CIRP and nodetails were provided by the RP as regards the disposal ofthe fund towards their claims;

(ii) The claims of the appellants had not received a fair andequitable treatment; G

(iii) The fair marketvalue and the liquidation value of theCorporate Debtor had not been taken into account and anamount of Rs 800 crores, being the value of certainpreference shares, did not form a part of the corpus ofpayments to the operational creditors; H

A(iv)There were material irregularities in the accumulation anddisbursal of funds that constituted the corpus of the corporatedebtor; and

(v) The appellants were made to suffer a reduction of 90 percent of their total claims,while substantial claims of nearlyBRs 120 crores have been rejected.

10. The NCLAT by its judgment dated 4 January 2021 rejectedthe appeal. The NCLAT noted that there was no substance in thegrievance that the operational creditors had been unfairly or inequitablytreated in regard to the distribution of funds. As a matter of fact,Coperational creditors (other than related parties and statutory creditors)were allocated 19.62 per cent of the up-front payment of Rs 3720 crores,while the financial creditors were paid only an amount of 10.32 per centof the upfront payment. The approved resolution plan, the NCLATobserved, ensures restructuring and revival of the corporate debtor.

D11. The appellants were not excluded from the CIRP as they hadfiled their claims, which had been partly admitted. In dealing with thesubmission that there was an absence of equitable treatment of theoperational creditors, the NCLAT held that equitable treatment can beclaimed only by similarly situated creditors. Operational creditors standon a different footing as compared to financial creditors. They are entitledEto receive payment not less than liquidation value, which does not applyto financial creditors. In this backdrop, the NCLAT relied upon thedecisions of this Court in Swiss Ribbons (P) Ltd. vs Union of India[14](“Swiss Ribbons”) and Committee of Creditors of Essar SteelIndia Limited vsSatish Kumar Gupta[15 ](“Essar Steel IndiaFLimited”). Finally,the NCLAT did not find substance in the grievancein regard to the preferential shares. It held that the distribution mechanismconforms to the provisions of Section 53 and was in accordance withthe provisions of the IBC. The appeal was accordingly dismissed.

E SubmissionsG

E SubmissionsG

12. When the present appeal came up on 10 March 2021, thisCourt noted the submission of the learned Senior Counsel that as aconsequence of the order of the NCLT of 2 March 2021, certain entitieswhich were recognized as financial creditors in the resolution plan have 14 (2019) 4 SCC 17H15 (2020) 8 SCC 531

been de-recognized as financial creditors. The issue, then, was whetherthis decision would have any bearing on the requisite majority requiredto pass a resolution plan. The Court noted the submission of SeniorCounsel for the Monitoring Committee, that the resolution plan has beenapproved by 100 per cent of the voting shares and the exclusion of somefinancial creditors from the CoC would be of no consequence. However,since the issue had been raised during the course of the submission, byan order dated 10 March 2021, opportunities were granted to the partiesto file affidavits explaining the position. Affidavits have accordingly beenexchanged between the parties, to which a reference would be made. Itis in this backdrop that the appeal has been heard finally at this stage.

13. Mr Dushyant Dave, learned Senior Counsel has appeared onbehalf of the appellants. Mr Neeraj Kishan Kaul, learned Senior Counseladdressed the submissions on behalf of the Monitoring Committee.

14. Mr Dushyant Dave, learned Senior Counsel, submitted onbehalf of the appellants that:

(i) The stated object and purpose of the IBC is to balance theinterest of all stakeholders and to maximize the value ofassets. The long title to the IBC elucidates that the legislationseeks to:

“… consolidate and amend the laws relating toreorganization and insolvency resolution of corporatepersons, partnership firms and individuals in a time-boundmanner for maximization of value of assets of suchpersons, to promote entrepreneurship, availability ofcredit and balance the interests of all the stakeholdersincluding alteration in the order of priority of payment ofGovernment dues and to establish an Insolvency andBankruptcy Board of India.”

(ii) The CIRP must be just, fair and equitable to all stakeholders,and cannot place the interest of the financial creditors at ahigher pedestal at the cost of other stakeholders. In thepresent case, the operational creditors are small and mediumscale companies who have supplied goods and services tothe Corporate Debtor andtheir interests have not been takeninto consideration; A

B

C

D

EF

G

H

958SUPREME COURT REPORTS

A(iii)The CIRP has been conducted in a secretive manner, inviolation of the principles of natural justice and there hasbeen an absence of information to the operational creditorsin regard to the contentsof the resolution plan. As a result,it was only after an order approving the resolution plan waspassed by the Adjudicating Authority, that the appellantBbecame aware of the specifics of the resolution plan;

(iv) The appellants are telecom service providers of theCorporate Debtor.The total operational debt owed to themamounts to Rs 190.40 crores (approx.), constituting over90 per cent of the total operational debts of the CorporateCDebtor. These operational creditors have provided coreservice in the nature of operation and maintenance oftelecom towers and the optical fiber network and associatedpassive infrastructure equipment. The interest of theoperational creditors, who are small and medium sizeDcompanies, have not been borne in mind by the CoC byplacing certain assets of the Corporate Debtor outside theresolution amount. The assets of the Corporate Debtor, helddirectly or indirectly through subsidiaries, should be availablefor distribution to all stakeholders; E(v)The resolution plan segregates and reserves a portion ofthe Corporate Debtor’s assets amounting to Rs 800 croresfor distribution to certain financial creditors alone, despitethere being no specific charge on such sums in their favor.This vitiates the object of the IBC which is to maximize thevalue of the assets of the Corporate Debtor and balanceFthe interest of all stakeholders;

(vi) The resolution plan has reserved a sum of Rs 800 croresexclusively for distribution to the financial creditors, andthe said amount does not form a part of the total resolutionamount of Rs 3720 crores being paid by the resolutionGapplicant to acquire the Corporate Debtor. This sum of Rs800 crores is realizable from the preference shares held byReliance Bhutan Limited, a wholly owned subsidiary of theCorporate Debtor in Reliance Reality Limited. On the otherhand, if Reliance Realty Limited is unable to sell such realHestate assets for Rs 800 crores or more, the Resolution

Applicant would itself buy such assets for Rs 800 croresand make such funds available for distribution to the specifiedfinancial creditors. In apportionment, a sale of Rs 800 croresexclusively for the benefit of specified financial creditorsisa violation of Section 30(2)(b) of the IBC;

(vii) The NCLT on an application filed by Doha Bank, a financialcreditor of the Corporate Debtor,by its order dated 2 March2021, set aside the inclusion of these banks (State Bank ofIndia, Bank of India, UCO Bank, Syndicate Bank, OrientalBank of Commerce and Indian Overseas Bank) from theCoC. Similarly, on the same analogy, various indirectcreditors of the Corporate Debtor have also been excluded.The basis of the inclusion of certain financial creditors (thisbeing challenged in the Doha Bank proceedings) was thatthe Corporate Debtor had executed a deed of guarantee infavour of these banks for securing a rupee loan facilityavailed by Reliance Communications Limited, the holdingcompany of the Corporate Debtor and Reliance TelecomLimited in violation of the facilities agreement between theconsortium of the corporate debtor. The NCLT excludedthese banks from the CoC, albeit prospectively, withoutimplications on the decisions which were taken until thedate of the order;

(viii) It is the appellant’s understanding that in the case of twoother indirect creditors as well, the Corporate Debtor hadexecuted corporate guarantees to secure fund based/non-fundbased facilities.Since at the time of the applicationpreferred by Doha Bank, the indirect creditors were notmembers of the CoC, no directions were issued in thatregard. However, it is the understanding of the appellantsthat the exclusion of the indirect creditors would havesignificant implications on the distribution of funds underthe resolution plan, if not on the validity of the plan. Theclaims of the six banks which were excluded by the NCLTwere admitted by the RP on the basis of a legal opinion,which is also the basis of admitting the claims of twenty-one similarly situated indirect creditors of the CorporateDebtor; A

B

C

D

E

F

G

H

A(ix)The NCLT failed to properly appreciate and consider theimplication of the exclusion of certain creditors from theCoC, on the ground that the pendency of the applicationsby Doha Bank would not come in the way of the approvalof the resolution plan. In the event that the twenty-oneindirect creditors are excluded, this would have implicationsBon the constitution of the CoC as well as on the rate ofrecovery for the financial creditors which may standincreased from 10.32 per cent to 91.98 per cent. On theother hand, the operational creditors would have a mererecovery of 19.62 per cent; and

C(x)There has been an absence of transparency in the processleading up to the approval of the resolution plan.The IBCmandates that the CoC consist only of financial creditors,while the operational creditors are only allowed to attendthe meetings without voting rights in case the amount ofDtheir aggregate duesis not less than 10 per cent of the totaldebt of the Corporate Debtor.As a result, operationalcreditors are left unaware of the process and the entiredecision making is left to the CoC based on its commercialwisdom. One of the grounds of appeal under Section61(3)(ii) is a material irregularity in the exercise of powersEby the RP during the CIRP. The issues faced by operationalcreditors have also been recognized in the report of theInsolvency Committee Report of February 2020.

15. Opposing the above submissions, Mr Neeraj Kishan Kaul,learned Senior Counsel submits that:F

(i) In the provisions of the IBC, specific stipulations have beenframed in respect of the operational creditors,namely:

a. Under Section 30(2)(b), the payment of debts to theoperational creditors in the resolution plan shall not beGless than the amount to be paid in the event of a liquidationunder Section 53;

b. Priority in terms of the water fall mechanism containedin Section 53 is provided; and

c. Representation of their views in the CoC is envisagedHunder Section 24(3)(c),through the operational creditors themselves or the representatives if they have aggregatedues which are not less than 10 per cent of the debt ofthe Corporate Debtor; A

(ii) If the proceedings were to take place strictly in accordancewith the provisions of the IBC, the liquidation value wouldbe zero.However, despite this, the resolution plan hasBprovided for the operational creditors to receive 19.62 percent of their dues as against 10.32 per cent for the financialcreditors;

(iii) The order of the NCLT by which six banks were excludedfrom the CoC has been stayed in appeal by the NCLAT.However, this issue is a non sequitur since the decision ofthe CoC to approve the resolution plan is with a voting shareof 100 per cent.The exclusion of any financial creditorsfrom the CoC has no significance to the requisite majorityrequired for passing a resolution plan; C

D

(iv) The issue in regard to the exclusion of twenty-one indirectcreditors is sought to be raised for the first time in this Courtin the additional affidavit. Even if, for the sake of argument,it were to be conceded that twenty-one indirect creditorsare excluded andfinancial creditors will receive 90 per centof their dues,there is a fundamental difference under theIBC between the position of operational creditors andfinancial creditors which is emphasised by the decision ofthis Court in Essar Steel India Limited (supra); E

(v) The principle of equitable treatment applies as betweencreditors belonging to the same class, which is emphasisedby Explanation 1to Section 30(2)(b); F

(vi) There is a fundamental error on the part of the appellantsin overlooking that the sum of Rs800 crores, which is therealisable value of the preference shares, is a part ofliquidation value. Thus, the value of these preference shareshas been duly taken into account; and G

(vii) The CoC has approved the resolution plan based on itscommercial wisdom. The NCLT in declining to scrutinizethe commercial wisdom of the CoC has acted in accordance H

Awith the provisions of the IBC as well as the decisions ofthis Court.

16. The rival submissions will now be analyzed.

F Analysis

BF.1 Clearing the ground

17. Before we deal with the legal submissions which have beencanvassed during the course of the hearing, it is necessary to clear theground on three factual aspects bearing on the outcome of the appeal:

(i) Valuation of Preference Shares

C

18. The first aspect is in relation to the inclusion of the realisablevalue from the sale of preference shares held by Reliance Bhutan Limited,in Reliance Realty Limited, in determining the liquidation value of theCorporate Debtor. It has been clarified in the affidavit filed by theinsolvency professional, in pursuance of the order of this Court dated 10DMarch 2021, that under the IBC and its regulations, the RP appointedtwo registered valuers in accordance with Regulation 27 of the Insolvencyand Bankruptcy Board of India (Insolvency Resolution Process forCorporate Persons) Regulations, 2016[16 ]to carry out the valuation of theCorporate Debtor and to determine the liquidation value and fair value inaccordance with Regulation 35(1). These values were placed beforeEthe CoC, in accordance with Regulation 35(2) of the CIRP Regulations,upon receipt of the resolution plans. The submission of the appellantsthat the realisable value from these preference shares is excluded fromthe liquidation value of the Corporate Debtor has been rebutted by aspecific clarification contained in the Monitoring Committee’s affidavit,which was filed in these proceedings. As a matter of fact, the realisableFvalue for the Corporate Debtor on account of any proceeds realisedfrom the preference shares held by its subsidiary (Reliance BhutanLimited), is included in the determination of the liquidation value of theCorporate Debtor. This statement in the affidavit is duly supported byrelevant excerpts from the valuation reportsdated 2 January 2020 and 6GDecember 2019, issued by the appointed valuers. The relevant extractfrom the report by Mr. Rakesh Narula on the fair value and liquidationvalue of the Corporate Debtor is set out below:

“Basis of valuation & assumptions:

Non-Current Assets:

1) Investment:

The balance of investment as per provisional financial statementswas Rs 5 lakhs as on valuation date. It represents investment inequity shares of Reliance Bhutan Limited.

The only asset in the audited financial statements of the subsidiaryis investment in preference shares of Reliance Realty Limited.

Based on our independent analysis of the value of real estatesitting on the balance sheet of Reliance Realty, we are of theopinion that the investment in Reliance Realty Limited is fullyrecoverable in the books of Reliance Bhutan Limited.

The book value of this investment is Rs 200 crores at whichReliance Bhutan Limited had purchased these shares fromReliance Infratel Limited. The original issue price of the preferenceshares was Rs 2,000 crores at which Reliance Realty Limitedhad issued the shares to Reliance lnfratel Limited in the financialyear 2016 - 17, these shares were subsequently in the year2016 - 17 were sold to Reliance Bhutan Limited for Rs. 200 Crores.

We have considered such shares to be redeemed at the originalissue price of Rs 2,000 crores. Out of this receipt of Rs 2,000crores, Reliance Bhutan Limited has existing liability of Rs 200crores in the balance sheet which shall be paid first. The remainingbalance of Rs 1,800 crores shall flow to the parent company,Reliance lnfratel Limited, which is considered as the fair value ofthis investment.

The liquidation value is determined by discounting the fair valueby 30% as the prevailing discount rate considering the currentstatus of operations of the company.

2) FinancialAssets:

The carrying amount of the financial assets was Rs1 crore as perthe provisional financial statements as on the valuation date. Itcomprises of the following:

a) Other Financial Assets:

A

B

C

D

E

F

G

H

AIt comprises of Rs 1 crores of deposits with bank having maturityof more than 12 months. We had requested for balanceconfirmation for these deposits. We were not provided with eitherbalance confirmations/ bank statements.

Since the same balance was disclosed in audited financials forBthe period ended 31st March 2018 and in the provisional financialstatements as on the valuation date,we……”

Therefore, the submission that the value of preference shareshas not been included in calculating the liquidation value of the CorporateDebtor is factually incorrect.

C(ii) Liquidation Value

19. The second aspect relates to the liquidation value. On this, ithas been clarified that the liquidation value due to the unsecuredoperational creditors would remain nil in all scenarios, including if thecorpus of Rs 800 crores is separately considered. The liquidation valueDof the Corporate Debtor is Rs 4339.58 crores. The amount being infusedby the successful resolution applicant is Rs 3720 crores. The amount ofRs 800 crores is a value ascribed under the approved resolution plan tobe realised by the Corporate Debtor, pursuant to the remittance ofproceeds in respect of the preference shares. Hence, cumulatively, theEvalue being distributed under the approved valuation plan is Rs 4520crores. It has been clarified that even if the liquidation value of therealisable value of the preference shares were to be considered in isolationfor distribution amongst all the operational creditors, in terms of the prioritycontained in Section 53(1) of the Code, the liquidation value due to theappellants would still remainat nil.F

(iii) The impact of exclusion

20. The third aspect relates to the order of the NCLT in DohaBank proceedings. The order of the NCLT in the application which wasmoved by Doha Bank for the removal of certain financial creditors fromthe CoC, has no bearing on the status of the approval of the resolutionGplan for the reason that it had received a unanimous approval with the100 per cent voting share in the CoC. The exclusion of certain financialdebts and hence,the exclusion of certain financial creditors from theCoC, pursuant to the order of the NCLT in the Doha Bank proceedings,has no practical implication since the resolution plan continues to beHapproved with a 100 per cent majority even after their exclusion.

21. The order of the NCLT in the Doha Bank proceedings did notprovide for the inclusion of any new financial creditors. The consequenceof the Doha Bank order would be that the inter se distribution betweenthe financial creditors would be affected, which has no consequence forthe operational creditors. In the affidavit which has been filed by theMonitoring Committee in pursuance to the order of the 10 March 2021of this Court, it has also been stated that:

“.. in terms of the Doha Bank Order, upon the exclusion of certainerstwhile financial creditors from the COC of the Corporate Debtor(and correspondingly the financial debt of such creditors), therevised financial debt in respect of the Corporate Debtor shall beINR 3,11,84,51,89,041/- (Thirty one thousand one hundred eightyfour crores fifty one lakhs eighty nine thousand and forty one).Being an amount which is more than 7 times the liquidation valueof the Corporate Debtor, such exclusion will have no implicationin respect of the distribution to operational creditors under theresolution plan.”

The above statement has not been controverted during the courseof the submissions.

F.2 Jurisdiction to approve a Resolution Plan

22. The resolution plan was approved by the CoC, in compliancewith the provisions of the IBC. The jurisdiction of the AdjudicatingAuthority under Section 31(1) is to determine whether the resolutionplan, as approved by the CoC, complies with the requirements of Section30(2). The NCLT is within its jurisdiction in approving a resolution planwhich accords with the IBC. There is no equity-based jurisdiction withthe NCLT, under the provisions of the IBC.

23. Now, it is in this backdrop that it becomes necessary for thisCourt to revisit some of the provisions of the IBC and to take note of theinterpretation which has been placed upon them in successive decisionsof this Court. Section 30(1) envisages the submission of a resolutionplan by a resolution applicant.On the submission of the resolution plan,the RP is required to examine it and to confirm, in terms of sub-Section(2) of Section 30, that the plan abides by the statutory requirements speltout in clauses (a) to (f)[17].

17 (2) The resolution professional shall examine each resolution plan received by him toconfirm that each resolution plan—

A

B

C

D

EF

G

H

A

PART F

24. The RP has to present to the CoC,for its approval, suchresolution plans which conform to the conditions specified in sub-Section(2) of Section 30.The approval of the resolution plan is a statutory functionwhich is entrusted to the CoC,under sub-Section (4) of Section 30. TheCoC may approve a resolution plan with avoting percentage of not lessB66 per cent of the voting shares of financial creditors after considering:(i)its feasibility and viability; (ii) the manner of distribution proposedhaving regard to the order of priority amongst creditors laid down inSection 53(1) of the IBC, including priority and value of the securityinterest of the secured creditors; and (iii) such other requirements asCmay be specified by the Insolvency and Bankruptcy Board of India. Inother words, the decision to approve a resolution plan is entrusted to theCoC.

(a) provides for the payment of insolvency resolution process costs in a manner specifiedby the Board in priority to the payment of other debts of the corporate debtor; (b) provides for the payment of debts of operational creditors in such manner as mayD—be specified by the Board which shall not be less than(i) the amount to be paid to such creditors in the event of a liquidation of the corporatedebtor under Section 53; or(ii) the amount that would have been paid to such creditors, if the amount to bedistributed under the resolution plan had been distributed in accordance with the orderof priority in sub-section (1) of Section 53, whichever is higher, and provides for thepayment of debts of financial creditors, who do not vote in favour of the resolutionEplan, in such manner as may be specified by the Board, which shall not be less than theamount to be paid to such creditors in accordance with sub-section (1) of Section 53 inthe event of a liquidation of the corporate debtor.

Explanation 1.—For the removal of doubts, it is hereby clarified that a distribution inaccordance with the provisions of this clause shall be fair and equitable to such creditors.Explanation 2.—For the purposes of this clause, it is hereby declared that on and fromFthe date of commencement of the Insolvency and Bankruptcy Code (Amendment) Act,2019, the provisions of this clause shall also apply to the corporate insolvency resolutionprocess of a corporate debtor—(i) where a resolution plan has not been approved or rejected by the AdjudicatingAuthority;

(ii) where an appeal has been preferred under Section 61 or Section 62 or such an appealis not time barred under any provision of law for the time being in force; orG(iii) where a legal proceeding has been initiated in any court against the decision of theAdjudicating Authority in respect of a resolution plan;(c) provides for the management of the affairs of the corporate debtor after approval ofthe resolution plan; (d) the implementation and supervision of the resolution plan; (e) does not contravene any of the provisions of the law for the time being in force; (f) conforms to such other requirements as may be specified by the Board.”H

25. The function of the Adjudicating Authority under Section 31 isto determine whether the resolution plan “as approved by the CoC”under Section 30(4) “meets the requirements” under Section 30(2). Ifthe Adjudicating Authority is satisfied that the resolution plan,as approved,meets the requirements under sub-Section (2) of Section 30, “it shall byorder approve the resolution plan” which shall then be binding onthe Corporate Debtor and all stakeholders, including those specificallyspelt out:

“31. (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 insub-section (2) of section 30, it shall by order approve the resolutionplan which shall be binding on the corporate debtor and itsemployees, members, creditors, including the Central Government,any State Government or any local authority to whom a debt inrespect of the payment of dues arising under any law for the timebeing in force, such as authorities to whom statutory dues areowed, guarantors and other stakeholders involved in the resolutionplan.”

26. The jurisdiction which has been conferred upon theAdjudicating Authority in regard to the approval of a resolution plan isstatutorily structured by sub-Section (1) of Section 31. The jurisdiction islimited to determining whether the requirements which are specified insub-Section (2) of Section30 have been fulfilled. This is a jurisdictionwhich is statutorily-defined, recognised and conferred, and hence cannotbe equated with a jurisdiction in equity, that operates independently ofthe provisions of the statute. The Adjudicating Authority as a body owingits existence to the statute, must abide by the nature and extent of itsjurisdiction as defined in the statute itself.

27. The jurisdiction of the Appellate Authority under Section 61(3),while considering an appeal against an order approving a resolution planunder Section 31, is similarly structured on specified grounds. Section61(3) provides:

“61…..(3) An appeal against an order approving a resolution planunder section 31 may be filed on the following grounds, namely:—

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

C

D

EF

G

H

(ii) there has been material irregularity in exercise of the powersby the resolution professional during the corporate insolvencyresolution period; A

(iii) the debts owed to operational creditors of the corporate debtorhave not been provided for in the resolution plan in the mannerBspecified by the Board;

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

(v) the resolution plan does not comply with any other criteriaspecified by the Board.”

C

28. Section 5(7) defines the expression ‘financial creditors’ whileSection 5(8) defines the expression ‘financial debt’. The expression‘operational creditor’ is defined in Section 5(20), while the expression‘operational debt’ is defined in Section 5(21). Now, insofar as theoperational creditors are concerned, there are specific requirements whichDhave been spelt out in sub-Section (2)(b) of Section 30. Section 30(2)(b)requires the RP to confirm upon examination that the resolution plan:

“30…(2)….(b) provides for the payment of debts of operationalcreditors in such manner as may be specified by the Board whichshall not be less than- E

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

(ii) the amount that would have been paid to such creditors, if theamount to be distributed under the resolution plan had beendistributed in accordance with the order of priority in sub-sectionF(1) of section 53, whichever is higher, and provides for the payment of debts offinancial creditors, who do not vote in favour of the resolutionplan, in such manner as may be specified by the Board, which shallnot be less than the amount to be paid to such creditors inGaccordance with sub-section (1) of section 53 in the event of aliquidation of the corporate debtor.

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

H

In other words, the amount which ispayable to the operationalcreditors towards their debts must at least be either what is provided insub-clause (i) or sub-clause (ii) of clause (b), whichever is higher. Subclause (i) refers to the amount paid to the operational creditors in theevent of a liquidation under Section 53. Sub-clause (ii) refers to theamount that would have been paid to the operational creditors, if theamount to be distributed under the resolution plan was distributed inaccordance with the order of priority under Section 53(1)(b), whichprovides for a waterfall mechanism.

29. These provisions indicate that the ambit of the AdjudicatingAuthority is to determine whether the amount that is payable to theoperational creditors under the resolution plan is consistent with the abovenorms which have been stipulated in clause (b) of sub-clause (2) ofSection 30. Significantly, Explanation-1 to clause (b), which is clarificatoryin nature, provides that a distribution which is in accordance with theprovisions of the clause “shall be fair and equitable” to such creditors.Fair and equitable treatment, in other words, is what is fair and equitablebetween the operational creditors as a class, and not between differentclasses of creditors. The statute has indicated that once the requirementsof Section 30(2)(b) are fulfilled, the distribution in accordance with itsprovisions is to be treated as fair and equitable to the operational creditors.

30. The appellants are challenging the treatment of operationalcreditors on the ground that it has not been fair and equitable. Theentitlement of the operational creditors being defined by sub-clause (b)of sub-section (2) of Section 30, the clarification contained in Explanation-1 must apply. As such, as long as the payment under the resolution planis fair and equitable amongst the operational creditors as a class, it satisfiesthe requirements of Section 30(2)(b).

31. The nature of the jurisdiction which is exercised by theAdjudicating Authority, while approving a resolution plan under Section31, has been interpreted in the judgment of a two-JudgeBench inK Sashidhar vs India Overseas Bank[18](“K Sashidhar”). Thedecision emphasizes that the Adjudicating Authority is circumscribed bySection 31 to scrutinizing the resolution plan “as approved” by the CoCunder Section 30(4). Moreover, even within the scope of that enquiry,the grounds on which the Adjudicating Authority can reject the plan is A

B

C

D

E

F

G

H

A

B

C

D

E

F

G

H

Awith reference to the matters specified in sub-Section (2) of Section30.Similarly, the Court notes that the jurisdiction of the Appellate Authorityto entertain an appeal against an approved resolution plan is defined bysub-Section (3) of Section 61. Now, it is in this context, that the consistentprinciple of law which has been laid down is that neither the AdjudicatingAuthority nor the Appellate Authority can enter into the commercialBwisdom underlying the approval granted by the CoC to the resolutionplan. The commercial wisdom of the CoC in its collegialcapacity is, hence,not justiciable.

32. In K Sashidhar (supra), Justice AM Khanwilkar, speakingfor the two-Judge Bench, held:C

“57. On a bare reading of the provisions of the I&B Code, itwould appear that the remedy of appeal under Section 61(1) isagainst an “order passed by the adjudicating authority (NCLT)”,which we will assume may also pertain to recording of the factthat the proposed resolution plan has been rejected or not approvedDby a vote of not less than 75% of voting share of the financialcreditors. Indubitably, the remedy of appeal including the width ofjurisdiction of the appellate authority and the grounds of appeal, isa creature of statute. The provisions investing jurisdiction andauthority in NCLT or NCLAT as noticed earlier, have not madeEthe commercial decision exercised by CoC of not approving theresolution plan or rejecting the same, justiciable. This position isreinforced 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 incontravention of the provisions of any law for the time being inFforce. Second, there has been material irregularity in exercise ofpowers “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 costsGhave 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—beit under Section 30(2) or under Section 61(3) of the I&B Code—are regarding testing the validity of the “approved” resolution planby CoC; and not for approving the resolution plan which has been H

disapproved or deemed to have been rejected by CoC in exerciseof its business decision.

58. Indubitably, the inquiry in such an appeal would be limited tothe power exercisable by the resolution professional under Section30(2) of the I&B Code or, at best, by the adjudicating authority(NCLT) under Section 31(2) read with Section 31(1) of the I&BCode. No other inquiry would be permissible. Further, thejurisdiction bestowed upon the appellate authority (NCLAT) isalso expressly circumscribed. It can examine the challenge onlyin relation to the grounds specified in Section 61(3) of the I&BCode, which is limited to matters “other than” enquiry into theautonomy or commercial wisdom of the dissenting financialcreditors. Thus, the prescribed authorities (NCLT/NCLAT)have been endowed with limited jurisdiction as specified inthe I&B Code and not to act as a court of equity or exerciseplenary powers.

59. In our view, neither the adjudicating authority (NCLT) nor theappellate authority (Nclat) has been endowed with the jurisdictionto reverse the commercial wisdom of the dissenting financialcreditors and that too on the specious ground that it is only anopinion of the minority financial creditors…...”

(emphasis supplied)

The Court, also held (in paragraph 62) that the legislative historyof the IBC indicated that “there is a contra indication that the commercialor business decisions of financial creditors are not open to any judicialreview by the adjudicating authority or the appellate authority”.

33. The above principles have been re-emphasised and takenfurtherby a three-Judge Bench in Essar Steel India Limited (supra).The Court, speaking through Justice R F Narminan, held:

“73. There is no doubt whatsoever that the ultimate discretion ofwhat to pay and how much to pay each class or sub-class ofcreditors is with the Committee of Creditors, but, the decision ofsuch Committee must reflect the fact that it has taken into accountmaximising the value of the assets of the corporate debtor andthe fact that it has adequately balanced the interests of allstakeholders including operational creditors. This being the case,judicial review of the Adjudicating Authority that the resolution AB

C

D

E

F

GH

Aplan as approved 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 provisions ofthe 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 of Creditors,Bthe limited judicial review available is to see that the Committeeof Creditors has taken into account the fact that the corporatedebtor needs to keep going as a going concern during theinsolvency resolution process; that it needs to maximize the valueof its assets; and that the interests of all stakeholders includingCoperational creditors has been taken care of. If the AdjudicatingAuthority finds, on a given set of facts, that the aforesaidparameters have not been kept in view, it may send a resolutionplan back to the Committee of Creditors to re-submit such planafter satisfying the aforesaid parameters. The reasons given bythe Committee of Creditors while approving a resolution plan mayDthus be looked at by the Adjudicating Authority only from thispoint of view, and once it is satisfied that the Committee of Creditorshas paid attention to these key features, it must then pass theresolution plan, other things being equal.”

34. The precedents laid down by this Court are in tandem withErecommendations made in the UNCITRAL’s Legislative Guide onInsolvency Law, which states that it is desirable that a court does notinterfere with the commercial wisdom of the decisions taken by thecreditors. The relevant extract is reproduced below[19]:

“63. The more complex the decisions the court is asked to makeFin terms of approval or confirmation, the more relevant knowledgeand expertise is required of the judges and the greater the potentialfor judges to interfere in what are essentially commercial decisionsof creditors to approve or reject a plan. In particular, it is highlydesirable that the law not require or permit the court to review theGeconomic and commercial basis of the decision of creditors(including issues of fairness that do not relate to the approvalprocedure, but rather to the substance of what has been agreed)nor that it be asked to review particular aspects of the plan in 19 Available at <https://uncitral.un.org/sites/uncitral.un.org/files/media-documents/Huncitral/en/05-80722_ebook.pdf> accessed 6 August 2021, pg. 228-229

terms of their economic feasibility, unless the circumstances inwhich this power can be exercised are narrowly defined or thecourt has the competence and experience to exercise the necessarylevel of commercial and economic judgement.”

F.3 EXERCISE OF JURISDICTION

35. Mr Dushyant Dave, learned Senior Counsel, sought to placeemphasis on the abovementioned observations in paragraph 73 of thedecision in Essar Steel India Limited (supra) to submit that the decisionof the CoC must reflect that it has taken into account the need to:

(i) Maximize the value of assets of the CD; and

(ii) Adequately balance theinterest of all stakeholders,includingof operational creditors.

The submission of learned Counsel is that in the present case,there was a failure to maximise the value of the assets and to balancethe interests of the stakeholders.

36. The submission that there has been a failure to maximise thevalue of the assets has not been substantiatedby any concrete materialbefore the Court, apart from the reference to the preference shareswhich has already been clarified earlier in this judgment. Whether theinterest of all stakeholders, including the operational creditors, has beenadequately balanced has to be determined within the four corners of thestatutory provisions of the IBC.It must be borne in mind that the jurisdictionof the Adjudicating Authority is circumscribed by the terms of theprovisions conferring the jurisdiction. In the present case, the approvedresolution plan has in fact provided for the payments to operationalcreditors, the percentage of recovery being 19.62 per cent. On the otherhand, the payment to financial creditors is 10.32 per cent.

37. The observations in paragraph 73 of the decision in EssarSteel India Limited (supra) clarify that once the Adjudicating Authorityis satisfied that the CoC has applied its mind to the statutory requirementsspelt out in sub-Section (2) of Section 30, it must then pass the resolutionplan. The decision also emphasises that equitable treatment of creditorsis “equitable treatment” only within the same class. In this context, thejudgment contains an elaborate foundation on the basis of which it hasheld that financial creditors belong to a class distinct from operationalcreditors. This distinction was emphasised in the earlier decision in Swiss A

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ARibbons (supra), where a two-Judge Bench of the Court, speakingthrough Justice R F Nariman, observed:

“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 of theBloan as well as reorganisation of the corporate debtor’s businesswhen there is financial stress, which are things operational creditorsdo not and cannot do. Thus, preserving the corporate debtor as agoing concern, while ensuring maximum recovery for all creditorsbeing the objective of the Code, financial creditors are clearlydifferent from operational creditors and therefore, there isCobviously an intelligible differentia between the two which has adirect relation to the objects sought to be achieved by the Code.”

38. In Essar Steel India Limited (supra), this Court held that“the UNCITRAL Legislative Guide…makes it clear beyond any doubtthat equitable treatment is only of similarly situated creditors”[20].The CourtDfinally also observed that the ‘fair and equitable’ norm does not meanthat financial and operational creditors must be paid the same amountsin any resolution plan before it can pass muster.On the contrary, it noted:

“88…Fair and equitable dealing of operational creditors’ rightsunder the said regulation involves the resolution plan stating as toEhow it has dealt with the interests of operational creditors, whichis not the same thing as saying that they must be paid the sameamount of their debt proportionately. Also, the fact that theoperational creditors are given priority in payment over all financialcreditors does not lead to the conclusion that such payment mustFnecessarily be the same recovery percentage as financial creditors.So long as the provisions of the Code and the Regulations havebeen met, it is the commercial wisdom of the requisite majority ofthe Committee of Creditors which is to negotiate and accept aresolution plan, which may involve differential payment to differentclasses of creditors, together with negotiating with a prospectiveGresolution applicant for better or different terms which may alsoinvolve differences in distribution of amounts between differentclasses of creditors.”

20 Available at <https://uncitral.un.org/sites/uncitral.un.org/files/media-documents/Huncitral/en/05-80722_ebook.pdf> accessed 6 August 2021, pg. 218

The Court also noted that:

“89...by vesting the Committee of Creditors with the discretion ofaccepting resolution plans only with financial creditors, operationalcreditors having no vote, the Code itself differentiates betweenthe two types of creditors.”

39. These decisions have laid down that the jurisdiction of theAdjudicating Authority and the Appellate Authority cannot extend intoentering upon merits of a business decision made bya requisite majorityof the CoC in its commercial wisdom.Nor is there a residual equitybasedjurisdiction in the Adjudicating Authority or the Appellate Authority tointerfere in this decision, so long as it is otherwise in conformity with theprovisions of the IBC and the Regulationsunder the enactment.

40. Certain foreign jurisdictions allow resolution/reorganizationplans to be challenged on grounds of fairness and equity. One of thegrounds under which a company voluntary arrangement can be challengedunder the United Kingdom’s Insolvency Act, 1986 is that it unfairlyprejudices the interests of a creditor of the company[21]. The United States’US Bankruptcy Code provides that if a restructuring plan has to clampdown on a dissenting class of creditors, one of the conditions that itshould satisfy is that it does not unfairly discriminate, and is fair andequitable[22]. However, under the Indian insolvency regime, it appearsthat a conscious choice has been made by the legislature to not conferany independent equity based jurisdiction on the Adjudicating Authorityother than the statutory requirements laid down under sub-Section (2) ofSection 30 of the IBC.

21 “Section 6 – Challenge of Decisions

1) Subject to this section, an application to the court may be made, by any of thepersons specified below, on one or both of the following grounds, namely—(a)that a voluntary arrangement which has effect under section 4A unfairly prejudicesthe interests of a creditor, member or contributory of the company;(b)that there has been some material irregularity at or in relation to the meeting of thecompany, or in relation to the relevant qualifying decision procedure.”22 ‘‘Section 1129 – Confirmation of a Plan […]

[…]

(b) (1)Notwithstanding section 510(a) of this title, if all of the applicable requirementsof subsection (a) of this section other than paragraph (8) are met with respect to a plan,the court, on request of the proponent of the plan, shall confirm the plan notwithstandingthe requirements of such paragraph if the plan does not discriminate unfairly, and is fairand equitable, with respect to each class of claims or interests that is impaired under,and has not accepted, the plan.”

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A41. An effort was made by Mr Dushyant Dave, learned SeniorCounsel, to persuade this Court to read the guarantees of fair procedureand non-arbitrariness as emanating from the decision of this Court inManeka Gandhi vs Union of India[23 ]into the provisions of the IBC.TheIBC, in our view, is a complete code in itself. It defines what isfair andequitable treatment by constituting a comprehensive framework withinBwhich the actors partake in the insolvency process. The processenvisaged by the IBC is a direct representation of certain economicgoals of the Indian economy. It is enacted after due deliberation inParliament and accords rights and obligations that are strictly regulatedand coordinated by the statute and its regulations. To argue that a residuaryCjurisdiction must be exercised to alter the delicate economic coordinationthat is envisaged by the statute would do violence on its purpose andwould be an impermissible exercise of the Adjudicating Authority’s powerof judicial review. The UNCITRAL, in its Legislative Guide on InsolvencyLaw, has succinctly prefaced its recommendations in the followingterms[24]:D“C. 15. Since an insolvency regime cannot fully protect the interestsof all parties, some of the key policy choices to be made whendesigning an insolvency law relate to defining the broad goals ofthe law (rescuing businesses in financial difficulty, protectingemployment, protecting the interests of creditors, encouraging theEdevelopment of an entrepreneurial class) and achieving the desiredbalance between the specific objectives identified above.Insolvency laws achieve that balance by reapportioning the risksof insolvency in a way that suits a State’s economic, social andpolitical goals. As such, an insolvency law can have widespreadFeffects in the broader economy.”

Hence, once the requirements of the IBC have been fulfilled, theAdjudicating Authority and the Appellate Authority are duty bound toabide by the discipline of the statutory provisions. It needs no emphasisthat neither the Adjudicating Authority nor the Appellate Authority haveGan unchartered jurisdiction in equity. The jurisdiction arises within and asa product of a statutory framework.

23 (1978) 1 SCC 248

24 Available at <https://uncitral.un.org/sites/uncitral.un.org/files/media-documents/uncitral/en/05-80722_ebook.pdf> accessed 6 August 2021,Hpg. 14-15

D Conclusion

42. In the present case, the resolution plan has been duly approvedby a requisite majority of the CoC in conformity with Section 30(4).Whether or not some of the financial creditors were required to beexcluded from the CoC is of no consequence, once the plan is approvedby a 100 per cent voting share of the CoC. The jurisdiction of theAdjudicating Authority was confined by the provisions of Section31(1)to determining whether the requirements of Section 30(2) have beenfulfilled in the plan as approved by the CoC. As such, once therequirements of the statute have been duly fulfilled, the decisions of theAdjudicating Authority and the Appellate Authority are in conformitywith law.

43. For the above reasons, we find no merit in the appeal.Theappeal shall accordingly stand dismissed.

44. Pending application(s), if any, shall stand disposed of.

Nidhi Jain

Appeal dismissed.

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