MAHARASTRA SEAMLESS VS PADMANABHAN VENKATESH : CASE SUMMARY
The Supreme Court in Maharastra Seamless Vs Padmanabhan Venkatesh (2020) 11 SCC 467 has held that the Resolution Plan amount need not match liquidation value of the Corporate Debtor. The Supreme Court also held that Resolution Plan cannot be withdrawn under Section 12A of the Insolvency and Bankruptcy Code, 2016.
FACTS OF THE CASE
Corporate Insolvency Resolution Process has been initiated in the matter of United Seamless Tubulaar Private Ltd (Corporate Debtor). During CIRP two registered valuers were appointed who valued the Corporate Debtor for Rs. 681 Crore and Rs. 513 Crore respectively. On account of substantial difference in their valuations the Committee appointed third valuer who valued the Corporate Debtor for Rs. 352 Crore. The Committee took the average of two closest estimates which was assessed to be Rs. 432.92 Crore.
The NCLT directed to revise valuation of the Corporate Debtor on the basis of first and second valuation. Revised valuation was enhanced from Rs. 432.92 Crore to Rs. 597.54 Crore.
The Adjudicating Authority approved the Resolution Plan vide order dated 21st January, 2019.
Appeal was filed before the NCLAT by one of the Promotors Padmanabhan Venkatesh and Indian Bank primarily on the ground that Resolution Plan amounting to Rs. 477 Crores will give Resolution Applicant windfall as liquidation value of the Corporate Debtor is Rs. 597.54 Crore. The NCLAT set aside the Resolution Plan passed by the NCLT.
FINDINGS OF THE SUPREME COURT
The Supreme Court considered two issues in this case i.e. (i) whether the Scheme of the Code contemplates that the sum forming part of Resolution Plan should match the liquidation value or not. (ii) Whether Section 12 A is the applicable route through which a successful Resolution Applicant can retreat.
The Supreme Court observe that there is no provision in the Code under which bid of any Resolution Applicant has to match the liquidation value arrived in the manner provided under Clause 35 of the IBBI (Insolvency Resolution Process for Corporate Persons) regulations, 2016. The object behind prescribing valuation process is to assist the CoC to take a decision on a Resolution Plan properly. Once Resolution Plan is approved by the CoC, the statutory mandate of on the Adjudicating Authority under Section 31 (1) of the Code is to ascertain that Resolution Plan meets requirement of Section 30 (2) and (4).
The Supreme Court observed that the Appellate Authority had proceeded on equitable considerations rather than commercial wisdom. The Court ought to cede ground to the commercial wisdom of the creditors rather than assess the resolution plan on the basis of quantitative analysis. The Code clearly lays down under Section 31 (1) of the Code that the Adjudicating Authority has to be satisfied of the requirement of Section 30 (2). The Adjudicating Authority has also to ensure that the Resolution Plan has provisions for implementation. The Supreme Court noted that in Committee of Creditor of Essar Steel Vs Satish Kumar Gupta it has been held that the scope of judicial review by the Adjudicating Authority in passing of Resolution Plan is limited.
The Supreme Court also held that the Resolution Applicant cannot withdraw the Resolution Plan under Section 12 A. The exit route prescribed in Section 12 A is not applicable to the Resolution Applicant. Section 12 A is applicable only to Section 7, 9 and 10 Applications.
The Supreme Court reversed the order of the NCLAT. The order passed by the NCLT was affirmed.
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Mukesh Kumar Suman is an advocate and legal author based at Delhi. He regularly appears before various Judicial Forums including NCLT, NCLAT, High Courts and the Supreme Court. He can be approached at mukesh_suman@outlook.com or +91 9717864570.
