Maharashtra Seamless Limited v. Padmanabhan Venkatesh & Ors (Supreme Court), Civil Appeal No. 4242 of 2019, Dated: 22/01/2020
It is, for the matter of reality, that there is no mandate under the I&B Code which provides that whether the Resolution Plan’s value shall be more than the liquidation value of the Corporate Debtor. It is this perplexing issue that the insolvency case of United Seamless Tubulaar Private Limited deals with. On 22nd January, the Full Bench of the Hon’ble Supreme Court of India in M/s. Maharashtra Seamless Limited v. Padmanabhan Venkatesh & Ors. categorically decided on the following issues:
Issue 1: Whether the scheme of the Code contemplates that the sum forming part of the resolution plan should match the liquidation value or not?
Issue 2: Whether Section 12-A is the applicable route through which a successful Resolution Applicant can retreat?
- Indian Bank the forerunner of the CIRP, filed an application under Section 7 of the I&B Code on June 12, 2017 against United Seamless Tubulaar Private Limited (Corporate Debtor). The said application was subsequently admitted by National Company Law Tribunal, Hyderabad.[i]
- The total debt of Corporate Debtor was Rs. 1897 Crores of which Rs. 1652 Crores was in form of Term Loans from two entities of Deutsche Bank, anda working capital borrowing of Rs. 245 Crore from Indian Bank. In addition to that, theverified claims of operational Creditor amounted to Rs.2.02 Crores.
- Valuation of the Corporate Debtor:
|Registered Valuer 1 (K. Vijay Bhasker Reddy)
||INR 681 cr
|Registered Valuer 2 (P.Madhu)
||INR 513 cr
|On account of substantial difference in their valuations, the Committee appointed a third valuer
|Valuer 3 (Duff and Phelps)
|Adjudicating Authority, vide order dated September 28, 2018, directed to RP to re-determine the liquidation value of the Corporate Debtor by taking into consideration the 1stand 2nd valuation.
- The Resolution Professional received four Resolution Plansaltogether. Out of which the Resolution Plan submitted by Maharashtra Seamless Limited was approved by majority of the CoC by 87.10% of voting share and the Indian Bank/Financial Creditor (having voting share 12.90%) dissented with the Resolution plan of Maharashtra Seamless Limited.
- The Adjudicating Authority, the National Company Law Tribunal, Hyderabad Bench (NCLT) by an order passed on 21st January 2019 approving the resolution plan submitted by MSL in an application filed by the Resolution Professional.
- The aforesaid order passed by the Adjudicating authority was carried up in appeal before the National Company Law Appellate Tribunal (NCLAT), which were preferred by the Promoter of United Seamless and Indian Bank (Financial Creditor).[ii]
- The arguments of Learned Counsel appearing on behalf of the appellant essentially hinged on the liquidation value. The Counsel contended that the liquidation value submitted by the Resolution Professional and accepted by the CoC for approval of the Resolution Plan was Rs. 597.54 Crores. Therefore, there could be no reason to release property valued at Rs.597.54 crores to MSL for Rs.477 crores. Furthermore, strengthening their submission on this point the appellants made a reference to the other Resolution Applicant whose bid was for Rs.490 crores (which was more than the amount offered by the MSL)
- NCLAT responding to petitions found that Resolution Plan is against the statement and object of the ‘I&B Code’ and thereby rejected the lender-approved resolution plan on the ground that the proposed upfront payment for the stressed asset of Indo-Malaysian joint venture United Seamless Tubular, was significantly lower than the average liquidation value. Ergo, the court directed the winning bidder to modify the plan by paying additional Rs. 120.54 Crores to make it at par with the average liquidation value of Rs.597.54 Crores.
- Consequently, during the pendency of the present appeal under the watchful eye of the Supreme Court, MSL documented an application before the Supreme Court.
Decision of Supreme Court:
- Dealing with Issue no. 1, Supreme Court manifested that there no provision in the Code or Regulations which provides that the bid of any Resolution Applicant has to match liquidation value. It further articulated that the object behind prescribing such valuation process is to assist the CoC to take decision on a resolution plan properly. Once, a resolution plan is approved by the CoC, the statutory mandate on the Adjudicating Authority under Section 31(1) of the Code is just to test the Resolution Plan with reference to provisions of Section 30(2) of the Code.
- Dealing with Issue no.2, the Supreme Court blazed that MSL cannot withdraw from the proceeding in the manner they have approached this Court. The exit route prescribed in Section 12-A is not applicable to a Resolution Applicant. The procedure envisaged in the said provision only applies to applicants invoking Sections 7, 9 and 10 of the code. The only route through which a resolution applicant can travel back after admission of the resolution plan is the aforesaid provision. Section 12-A of the 2016 Code stipulates: –
“12A. Withdrawal of application admitted under section 7, 9 or 10. – The Adjudicating Authoritymay allow the withdrawal of application admittedunder section 7 or section 9 or section 10, on anapplication made by the applicant with the approvalof ninety per cent. voting share of the committee ofcreditors, in such manner as may be specified.”[iii]
The Supreme Court ruling in effect found that the said plan met all the requirements of Section 30(2) of the Code and thus Adjudicating authority did not erred in approving the resolution plan and thereby affirmed the order of Adjudicating Authority dated 21st January 2019. Albeit, on the other hand it found that the Appellate Authority had, exceeded its jurisdiction in directing matching of liquidation value in the resolution plan and wrongly proceeded on equitable perception rather than commercial wisdom. Thus, again reiterating that the resolution plan should be left to the commercial wisdom of the Committee of Creditors. It further verbalized that there is no requirement that resolution plan should match the maximized asset value of the corporate debtors.
Taking into consideration the nature of the case, this ruling will surely have rippling effect if not causing waves because this approach may be problematic for future reference wherein CoC under the garb of commercial wisdom approves Resolution Plan whose value is less than the liquidation value of the Company.
[i]M/s Indian Bank v. M/s United Seamless Tubulaar Private Limited CP(IB)/49/7/HDB/2017.
[ii] Company Appeal (AT) (Insol.) Nos. 128 & 247 of 2019.
[iii] Section 12, Insolvency and Bankruptcy Code, 2016.
Written By: Shweta Sharma (Law College Dehradhun) & Anshuman Makkar (Rajiv Gandhi National University of Law)