Date : 26-02-2020

Justice Anirudh Bose speaking through two-judges bench in the case of Maharashtra Seamless Ltd (MSL) v. Padmanabhan Venkatesh and others.

The SC was called upon to decide, firstly, whether the code contemplates that the sum forming part of the resolution plan should match the liquidation value or not. And secondly, whether Section 12-A is the applicable route through which a successful Resolution Applicant can retreat.

The NCLAT has approved the resolution plan computing of amount of Rs.477 crores, this has given the Resolution Applicant pennies from the heaven as they would get assets valued at Rs.597.54 crores at much lower amount.

The SC after the deliberate perusal of the order of the NCLAT, set aside the order and allowed the appeal. The court has held that:

“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.”

The court also reiterated the strand taken by the court in the case of Essar Steel ltd (2019 SCC OnLine SC 1478). In this case the case the court held the following:-

“Therefore, maximization of value of the assets of such persons so that they are efficiently run as going concerns is another very important objective of the Code.”

The Supreme Court further held, in the SML case (supra) that:-

”It appears to us 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 to ascertain that a resolution plan meets the requirement of sub-sections (2) and (4) of Section 30 thereof. We, per se, do not find any breach of the said provisions in the order of the Adjudicating Authority in approving the resolution plan.”

The SC is of the opinion that the prima facie, release of assets at a value 20% below its liquidation value arrived at by the valuers seems inequitable. The court interpreted the scheme of the section 31(1) of the code, stating as follows:-

“Section 31(1) of the Code lays down in clear terms that for final approval of a resolution plan, the Adjudicating Authority has to be satisfied that the requirement of sub-section (2) o Section 30 of the Code has been complied with.”

The SC while discussing the second issue has held that:-

“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. In this case, having appealed against the NCLAT order with the object of implementing the resolution plan, MSL cannot be permitted to take a contrary stand in an application filed in connection with the very same appeal.”

The court observed that the MSL has raised the funds by mortgaging the assets of the corporate debtor only. The court in this situation has declined to take into consideration the question as to whether after having been successful in a CIRP, an applicant altogether forfeits their right to withdraw from such process or not.

Disclaimer: -This article is for the general information and awareness of its readers, In-case of any legal matter in relation with readers, they are expected to have legal opinion before placing reliance on it. Further it contains completely author's views on the subject and completely unbiased based on authors own experience, study and understanding.

Author : Shivani Aggarwal