The Full Bench of the Hon'ble Supreme Court of India ("Supreme Court") comprising of Mr. Justice R.F. Nariman, Mr. Justice Aniruddha Bose, and Mr. Justice V. Ramasubramanian in M/s. Maharashtra Seamless Limited v. Padmanabhan Venkatesh & Ors. (Civil Appeal No. 4242 of 2019) ("Maharashtra Seamless Limited/MSL") vide Judgment dated January 22, 2020 decided on the following issues: -
Whether the scheme of the Insolvency and Bankruptcy Code, 2016 ("Code") contemplates that the sum forming part of the resolution plan should match the liquidation value? and,
Whether Section 12-A is the applicable route through which a successful Resolution Applicant can retreat?
Ruling of the Supreme Court:
On the first issue, the Supreme Court held that there is no provision in the Code or Regulations thereunder, that has been brought to their notice, under which the bid of any Resolution Applicant has to match liquidation value arrived in the manner provided in Clause 35 of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016. The Supreme Court further held that the object behind prescribing such valuation process is to assist the Committee of Creditors ("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 to ascertain that a resolution plan meets the requirement of sub-sections (2) and (4) of Section 30 thereof. Thus, the Supreme Court did not find any breach of the said provisions in the order of the Adjudicating Authority in approving the resolution plan.
On the second issue, the Supreme Court held that the exit route prescribed in Section 12A 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 Supreme Court, after taking into consideration the facts of the case as well as the view taken in the Committee of Creditors of Essar Steel India Limited1 and Swiss Ribbons2, reiterated that the commercial wisdom of CoC in approving the resolution plan cannot be questioned and hence, set aside the order of NCLAT dated April 8, 2019 and upheld the order of the Adjudicating Authority dated January 21, 2019.
Brief facts in Maharashtra Seamless Limited:
- An application under Section 7 of IBC was filed by Indian Bank on June 12, 2017 against United Seamless Tubulaar Private Limited ("Corporate Debtor"). The said application was subsequently admitted by National Company Law Tribunal, Hyderabad ("Adjudicating Authority").
- Two registered valuers were appointed by the Resolution Professional ("RP") for the valuation of Corporate Debtor and accordingly, the Corporate Debtor was valued at INR 681 Crore and INR 513 Crore respectively. On account of substantial difference in the aforesaid valuation, a third valuer was appointed which valued the Corporate Debtor at INR 352 Crore. Accordingly, the average of the two closest estimates of valuation of liquidation value was assessed to be INR 432.92 Crore.
- Thereafter, the RP approached the Adjudicating Authority for approval of the resolution plan for MSL ("MSL Resolution Plan"). However, the application was disposed of by the Adjudicating Authority, vide order dated September 28, 2018, with directions to RP to re-determine the liquidation value of the Corporate Debtor by taking into consideration the first and second valuation. Accordingly, the valuation was revised from INR 432.92 Crore to INR 597.54 Crore.
- The aforesaid order of the Adjudicating Authority was challenged before the Hon'ble National Company Law Appellate Tribunal ("NCLAT"), which was disposed of with directions to the Adjudicating Authority to pass orders on the Resolution Plan under Section 31 of the Code.
- The Adjudicating Authority, vide order dated January 21, 2019, approved MSL Resolution Plan of INR 578 Crore, which stipulated an upfront payment of INR 477 Crore and additional fund infusion on the takeover of Corporate Debtor. The said order was challenged before NCLAT by one of the promoters of the Corporate Debtor ("Promoter's Appeal") and Indian Bank ("Financial Creditor's Appeal") on the ground that the approval of MSL Resolution Plan was giving windfall to the Resolution Applicant as they would get assets valued at INR 597.54 Crore for a much lower price, when there was another resolution applicant offering INR 490 Crore.
- NCLAT, vide order dated April 8, 2019 in Promoter's Appeal, held that MSL should increase upfront payment from INR 477 Crore to INR 597.54 Crore to bring it at par with the average liquidation value of INR 597.54 Crore; the increased upfront amount was directed to be distributed amongst the Financial Creditors and the Operational Creditors in the ratio of 25% of their claim amount. NCLAT further directed MSL to deposit INR 120.54 Crore, being the differential amount, within 30 days, failing which the order of Adjudicating Authority dated January 21, 2019 approving MSL Resolution Plan will be treated to have been set aside.
- During the pendency of the present appeal before the Supreme Court, MSL filed an application before the Supreme Court seeking refund of the sum deposited in terms of the MSL Resolution Plan along with interest as well as withdrawal of MSL Resolution Plan due to inordinate delays in implementation.
It is evident from the Supreme Court judgment in Maharashtra Seamless Limited that paramount importance would be given to the commercial wisdom of CoC, while deciding on the feasibility and viability of the resolution plan. We feel that the judgment walks a tightrope between maximization of value of assets of Corporate Debtor and the continued life of the Corporate Debtor as a going concern and hence, in absence of any provisions under the Code and/or Regulations stipulating that the amount offered under resolution plan should be equivalent to the liquidation value, set aside the impugned NCLAT order.
 Para Nos 53, 54, 70 and 124 of Committee of Creditors of Essar Steel India Limited vs. Satish Kumar Gupta, in Civil Appeal Nos. 8766-8767 of 2019 decided on November 15, 2019 (2019 SCC OnLine SC 1478).
 Swiss Ribbons Pvt. Ltd. & Anr. v. Union of India & Ors. in Civil Writ Petition No. 99 of 2018 decided on January 25, 2019
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