A) ABSTRACT / HEADNOTE

The case DBS Bank Limited Singapore v. Ruchi Soya Industries Limited and Another revolves around the application and interpretation of Section 30(2)(b)(ii) of the Insolvency and Bankruptcy Code (IBC), 2016, as amended in 2019, specifically addressing the rights of dissenting financial creditors in insolvency proceedings. The Supreme Court of India examined whether a dissenting secured creditor is entitled to the minimum value of its security interest under a resolution plan, even when opposed by the Committee of Creditors (CoC). The Court delved into the statutory right of dissenting financial creditors to obtain the liquidation value of their security interest, highlighting conflicts with earlier judgments like India Resurgence ARC Pvt Ltd v. Amit Metaliks Ltd and emphasizing the principles laid down in Essar Steel India Ltd v. Satish Kumar Gupta. This case, significant for insolvency jurisprudence in India, centers on ensuring equitable treatment for dissenting financial creditors in distribution schemes, with implications for creditors’ autonomy and the binding effect of CoC decisions.

• Keywords: Insolvency, Dissenting Financial Creditor, Minimum Security Value, Liquidation Value, Commercial Wisdom

B) CASE DETAILS

• Judgment Cause Title: DBS Bank Limited Singapore v. Ruchi Soya Industries Limited and Another
• Case Number: Civil Appeal No. 9133 of 2019
• Judgment Date: 03 January 2024
• Court: Supreme Court of India
• Quorum: Sanjiv Khanna and S.V.N. Bhatti, JJ.
• Author: Sanjiv Khanna, J.
• Citation: [2024] 1 S.C.R. 114 : 2024 INSC 14
• Legal Provisions Involved: Insolvency and Bankruptcy Code, 2016 – Section 30(2)(b)(ii), Section 30(4), Section 53(1); IBC (Amendment) Act, 2019
• Judgments Overruled by the Case: Partially overruled India Resurgence ARC Pvt Ltd v. Amit Metaliks Ltd
• Case Related to Law Subjects: Insolvency and Bankruptcy Law, Corporate Law

C) INTRODUCTION AND BACKGROUND OF JUDGEMENT

The case arose from the Corporate Insolvency Resolution Process (CIRP) initiated against Ruchi Soya Industries Ltd. DBS Bank, a dissenting secured financial creditor, objected to the resolution plan approved by the CoC on the grounds that it undervalued its security interest. The amendment in 2019 to Section 30(2)(b) introduced new protections, mandating that dissenting financial creditors must receive a minimum payment equivalent to their liquidation entitlement. This case underscores the evolving jurisprudence around the rights of dissenting financial creditors and the supremacy of commercial wisdom as exercised by the CoC.

D) FACTS OF THE CASE

1. Loan Agreement: DBS Bank extended a financial loan of approximately USD 50 million to Ruchi Soya, secured by first-charge mortgages on various immovable assets in India.

2. Initiation of CIRP: On 15 December 2017, CIRP was commenced for Ruchi Soya under the IBC, with DBS Bank’s claim for INR 243 crore admitted by the appointed Resolution Professional (RP).

3. Resolution Plan: In March 2019, Patanjali Ayurvedic Ltd submitted a resolution plan proposing INR 4,134 crore against the financial creditors’ claims totaling INR 8,398 crore. The CoC approved a pro rata distribution of proceeds, disregarding DBS Bank’s preferential charge.

4. DBS Bank’s Dissent: DBS Bank voted against the resolution plan, becoming a dissenting financial creditor. It challenged the distribution mechanism, arguing its entitlement to the liquidation value based on its secured position.

5. Appeals: DBS filed an application before the National Company Law Tribunal (NCLT) to alter the distribution methodology, which was dismissed. Subsequently, DBS appealed to the National Company Law Appellate Tribunal (NCLAT), which also rejected its appeal, leading to this proceeding before the Supreme Court.

E) LEGAL ISSUES RAISED

1. Whether the amended Section 30(2)(b)(ii) mandates that dissenting secured creditors receive the liquidation value of their security interest.
2. The retrospective application of the amendment to Section 30(2)(b) concerning proceedings initiated before the amendment’s effective date.
3. Interpretation and applicability of commercial wisdom by the CoC under Section 30(4) in relation to dissenting creditors’ rights.

F) PETITIONER/ APPELLANT’S ARGUMENTS

1. Statutory Entitlement to Liquidation Value: Counsel for DBS argued that the amendment to Section 30(2)(b)(ii) protects dissenting creditors by mandating a minimum payout, equivalent to liquidation value, irrespective of the CoC’s decision.

2. Retrospective Application of the Amendment: DBS claimed the 2019 amendment applies to pending CIRP cases, asserting that NCLAT erred in dismissing its appeal without applying the amended provisions.

3. Disproportionate Distribution of Assets: DBS contended that the CoC’s pro rata distribution violated principles of equitable treatment by disregarding the superior security interest of dissenting creditors, leading to unjust enrichment of other creditors.

G) RESPONDENT’S ARGUMENTS

1. Commercial Wisdom of CoC: The CoC and Patanjali Ayurvedic Ltd argued that the pro rata distribution represents a reasonable exercise of commercial wisdom, binding on dissenting creditors like DBS.

2. Applicability of Section 30(2)(b): The respondents contended that Section 30(2)(b) does not provide dissenting creditors a right to demand liquidation value; rather, it protects them against receiving less than the liquidation threshold.

3. Non-Discriminatory Distribution: The CoC maintained that the approved resolution plan ensures fair treatment among all creditors, asserting that DBS’s dissent does not entitle it to a preferential payout.

H) JUDGEMENT

a. RATIO DECIDENDI

The Supreme Court held that Section 30(2)(b)(ii) ensures dissenting financial creditors receive the liquidation value of their security interest. This entitlement remains protected, notwithstanding CoC’s distribution discretion under Section 30(4). The Court highlighted contradictions in India Resurgence ARC Pvt Ltd v. Amit Metaliks Ltd, reaffirming the dissenting creditors’ statutory rights as per Essar Steel India Ltd v. Satish Kumar Gupta.

b. OBITER DICTA

The Court observed that while the CoC’s commercial wisdom is generally upheld, it does not supersede statutory protections for dissenting creditors. Ensuring minimum payouts prevents unjust distribution among creditors, which would undermine confidence in the insolvency framework.

c. GUIDELINES

1. Dissenting Financial Creditor Rights: Dissenting secured creditors are entitled to liquidation value, safeguarded under Section 30(2)(b)(ii).
2. Application of Commercial Wisdom: CoC’s discretion under Section 30(4) must be exercised in alignment with statutory entitlements.
3. Non-Precedential Conflict: Conflicting judgments should be resolved by larger Benches to maintain consistent interpretation.

I) CONCLUSION & COMMENTS

This judgment underscores the Supreme Court’s commitment to preserving statutory protections for dissenting creditors under the IBC, balancing creditor autonomy with procedural fairness. By aligning with the Essar Steel precedent, the Court has bolstered creditor confidence, emphasizing that commercial wisdom does not override statutory safeguards.

J) REFERENCES

a. Important Cases Referred

• Committee of Creditors of Essar Steel India Ltd v. Satish Kumar Gupta [2019] 16 SCR 275
• India Resurgence ARC Pvt Ltd v. Amit Metaliks Ltd [2021] 6 SCR 611
• Jaypee Kensington Boulevard Apartments Welfare Association v. NBCC (India) Ltd [2021] 12 SCR 603

b. Important Statutes Referred

• Insolvency and Bankruptcy Code, 2016 – Sections 30(2), 30(4), 53(1)
• IBC (Amendment) Act, 2019