The hon’ble Supreme Court of India (Supreme Court) in its judgment in the matter of DBS Bank Ltd Singapore v. Ruchi Soya Industries Ltd. (DBS Judgment) ruled on one the most contentious issues pertaining to the entitlement to a minimum value of security interest held by a dissenting financial creditor under Section 30(2)(b)(ii) of the Insolvency and Bankruptcy Code, 2016 (Code). In doing so, the bench attempted to independently read sections 30(2)(b)(ii) and 30(4) of the IBC to hold that the commercial wisdom of the Committee of Creditors (CoC) to include the value of security interests, only extends to the security interest held by the assenting creditor. Further, while referring to section 53 of the code, the Supreme Court was of the opinion that Section 52 cannot be ignored, and thus, a dissenting secured creditor would be entitled to a minimum value in monetary terms equivalent to the value of security interest.
The bench herein opined that in so far as the security interest of the dissenting creditors is concerned, such creditors may be at the liberty to enforce their security interest to extent of the liquidation value receivable by such creditors under section 53(1), and in case, such liquidation value has not been received, the dissenting creditor is also at the liberty to object the distribution of the proceeds under the resolution plan. The Court has questioned the reasoning of another coordinate bench in India Resurgence Arc Private Limited vs Amit Metaliks Limited & Anr. (India Resurgence judgment) and referred the issue before a larger bench.
Although by way of the DBS judgment, the Supreme Court has attempted to extend greater benefit to the dissenting creditors by considering the same as a minority class, however in doing so, the Supreme Court rather has inadvertently incentivized such class of creditors by allowing them to object to distribution of proceeds which do not consider the value of their security interest. This, in turn, is likely to have a cascading effect on resolution process where a secured financial creditor has likelihood of great recovery through the security interest it holds vis-à-vis plan value assigned for such creditor.
Given that the issue now stands before a larger bench, what inter alia needs to be answered is whether Section 30(2)(b)(ii) read with Section 30(4) of the Code ought to consider waterfall under Section 53 per se or along with implication of section 52? Further, whether the binding effect of the commercial wisdom of the CoC extends even upon the security interest of a dissenting creditor? However, in the meantime, the position of law expounded in India Resurgence Judgment will continue to be good law as the same is read down by the larger bench.