State Bank of India Vs Accord Life Spec Private Limited Through Director & Ors. (Supreme Court of India)
Summary: The Supreme Court of India, comprising Justice Rohinton Fali Nariman and Justice S. Ravindra Bhat, allowed the appeal filed by State Bank of India against M/s. Accord Life Spec Private Limited Through Director & Ors. in Civil Appeal No. 9036 of 2019 by an order dated 28 February 2020. The dispute concerned whether a resolution plan offering an amount lower than the liquidation value of the corporate debtor could be accepted under the Insolvency and Bankruptcy Code, 2016. The appeal challenged the NCLAT judgment dated 13 November 2019, which had remitted the matter to the National Company Law Tribunal on the ground that accepting such a plan would be inconsistent with Section 30(2) of the Code and the principle of maximisation of the corporate debtor’s assets.
The NCLAT had proceeded on the interpretation that a resolution plan could not be approved where its value was below the liquidation value. It had considered the requirements of Section 30(2) of the Insolvency and Bankruptcy Code along with the objective of maximising the value of assets. On that basis, it had remanded the matter to the NCLT rather than permitting the resolution plan to stand. The Supreme Court examined the correctness of this legal approach in light of an intervening judgment clarifying the relationship between liquidation value and the consideration offered by a resolution applicant.
The Supreme Court relied on its judgment dated 22 January 2020 in Maharashtra Seamless Limited Vs Padmanabhan Venkatesh & Ors., Civil Appeal No. 4242 of 2019. In that decision, the Court had categorically held that neither the IBC nor the CIRP Regulations prescribe that the bid of a resolution applicant must equal or exceed the liquidation value. The Court specifically referred to the valuation mechanism contained in Regulation 35 of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016.
The cited decision in Maharashtra Seamless also referred to Committee of Creditors of Essar Steel India Limited Vs Satish Kumar Gupta & Ors.. The relevant principle was that liquidation value is part of the statutory valuation framework, but it does not operate as a compulsory minimum bid for every resolution applicant. Accordingly, rejection of a resolution plan solely because its consideration falls below liquidation value is not supported by the statutory provision identified by the NCLAT.
Applying this binding precedent, the Supreme Court found that the NCLAT judgment dated 13 November 2019 could not be sustained as a matter of law. The Court did not undertake a fresh factual valuation of the corporate debtor’s assets or determine the commercial adequacy of the resolution plan. Instead, it confined its ruling to the legal error in treating liquidation value as a mandatory minimum threshold under the IBC. This distinction is important because the order does not dispense with other statutory requirements governing resolution-plan approval.
The Supreme Court accordingly allowed State Bank of India’s appeal and set aside the impugned NCLAT judgment. The separate application for impleadment was dismissed as withdrawn, and the record of proceedings stated that pending applications, if any, stood disposed of. The decision reaffirmed the legal position that a resolution plan cannot be rejected merely because its offered amount is lower than the liquidation value, subject to the plan otherwise satisfying the applicable statutory requirements. The order contains no direction requiring the resolution applicant to increase the bid to match liquidation value.
Cases Discussed
1. Maharashtra Seamless Limited Vs Padmanabhan Venkatesh & Ors. — Civil Appeal No. 4242 of 2019; 22/01/2020; Supreme Court. The Supreme Court expressly followed this decision holding that the bid of a resolution applicant is not required to match the liquidation value determined under Regulation 35 of the CIRP Regulations.
2. Committee of Creditors of Essar Steel India Limited Vs Satish Kumar Gupta & Ors. — (2020) 8 SCC 531; 15/11/2019; Supreme Court. Referred to within the quotation from Maharashtra Seamless concerning the statutory framework for resolution plans and liquidation value.
FULL TEXT OF THE ORDER OF SUPREME COURT
Application for impleadment is dismissed as withdrawn.
The impugned judgment dated 13.11.2019 has remitted the matter to the NCLT after a finding that under Section 30(2) of the Insolvency and Bankruptcy Code together with the principle of maximization of assets of the corporate debtor, a resolution plan which is lesser than liquidation value cannot be accepted.
As a matter of law, this judgment has to be set aside in view of our recent judgment dated 22.01.2020 in Civil Appeal No. 4242 of 2019 entitled Maharashtra Seamless Limited vs. Padmanabhan Venkatesh & Ors. in which this Court has categorically held as under:
“26. No provision in the Code or Regulations has been brought to our notice under which the bid of any Resolution Applicant has to match liquidation value arrived at in the manner provided in Clause 35 of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016. This point has been dealt with in the case of Essar Steel (supra). We have quoted about the relevant passages from this judgment.”
Accordingly, the appeal is allowed and the judgment of the NCLAT is set aside.
Application for impleadment is dismissed as withdrawn.
The appeal is allowed in terms of the signed order.
Pending applications, if any, stand disposed of.
