MISHRA AND S. RAVINDRA BHAT, JJ.]versusRAVE SCANS PVT. LTD. & ORS.

                        [2019] 13 S.C.R. 1127                            1127


                           RAHUL JAIN                                    A
                                  v.
                RAVE SCANS PVT. LTD. & ORS.
                   (Civil Appeal No. 7940 of 2019)
                       NOVEMBER 08, 2019                                 B
       [ARUN MISHRA AND S. RAVINDRA BHAT, JJ.]
       Insolvency and Bankruptcy Code, 2016 – ss.10 and 30 –
Insolvency and Bankruptcy Board of India (Insolvency Resolution
Process for Corporate Persons) Regulations, 2016 – regn.38 –
Corporate Insolvency Resolution Process (CIRP) was initiated             C
against the corporate debtor u/s.10 of the IBC – The appellant was
the resolution applicant of the corporate debtor, whose liquidation
value was ascertained as 36 crores and against the said amount
appellant offered 54 crores to revive the corporate debtor in terms
of the resolution plan – The resolution plan was revised by the
                                                                         D
appellant, which was approved by the adjudicating authority i.e.
NCLT – Second respondent (dissenting creditor) challenged the
resolution plan alleging that it was provided with only 32.34% of
its admitted claim, whereas other financial creditors were provided
with 45% of their admitted claims and hence it was discriminatory
– NCLAT directed the appellant to increase the liquidation value of      E
the offer to second respondent – On appeal, held: In the instant
case, second respondent was provided with 32.34% of its admitted
claim as it had dissented with the plan – On the other hand, other
financial creditors were provided with 45% of the admitted claim –
Given that the resolution process began well before the amended
regulation 38 came into force (in fact, January, 2017) and the           F
resolution plan was prepared and approved before that event, the
wide observations of the NCLAT, requiring the appellant to match
the pay-out (offered to other financial creditors) to second
respondent, was not justified – The court noticed that the liquidation
value of the corporate debtor was ascertained at 36 crores – Against
the said amount, the appellant offered 54 crores – The plan was          G
approved and, except the objections of the dissenting creditor
(second respondent), the plan had attained finality – Having regard
to these factors and circumstances, the NCLAT’s order and directions
were not justified, consequently set aside – The order of the NCLT
restored.
                                                                         H
                                 1127
1128           SUPREME COURT REPORTS                    [2019] 13 S.C.R.


 A          Allowing the appeal, the Court,
             HELD: 1. Section 30 of the Insolvency and Bankruptcy
       Code, 2016 lays out the duties of the resolution professional and
       the various steps that she or he has to take, as well as the
       considerations that are to weigh, in examining a resolution plan.
 B     The principle of fairness engrafted in the provision is that the
       plan should make a provision for repayment of debts of operational
       creditors having regard to the value, which shall not be less than
       what is prescribed by the Board (i.e. the Insolvency Board),
       repayable in the event of liquidation, spelt out in Section 53.
       Section 30(3) requires the resolution professional to present the
 C     resolution plan to the committee of creditors and Section 30(4)
       stipulates that approval shall be by a vote not less than 75% of
       the voting share of the financial creditors. [Para 11][1134-A-C]
             2. In the present case, it is noticeable that no doubt, the
       second respondent was provided with 32.34% of its admitted
 D     claim as it has dissented with the plan. On the other hand, Tata
       Capital Financial Services Ltd. was provided with 75.63% of its
       admitted claim; other financial creditors (Indian Overseas Bank,
       Bank of Baroda and Punjab National Bank) were provided with
       45% of their admitted claims. Given that the resolution process
 E     began well before the amended regulation came into force (in
       fact, January, 2017) and the resolution plan was prepared and
       approved before that event, the wide observations of the NCLAT,
       requiring the appellant to match the pay-out (offered to other
       financial creditors) to second respondent, was not justified. The
       court notices that the liquidation value of the corporate debtor
 F     was ascertained at 36 crores. Against the said amount, the
       appellant offered 54 crores. The plan was approved and, except
       the objections of the dissenting creditor (i.e second respondent),
       the plan has attained finality. Having regard to these factors and
       circumstances, it is held that the NCLAT’s order and directions
 G     were not justified. They are hereby set aside; the order of the
       NCLT is hereby restored. [Para 13][1135-A-D]
            Central Bank of India v. Resolution Professional of the
            Sirpur Paper Mills Ltd. & Ors., Company Appeal (AT)
            (Insolvency) No. 526 of 2018; Binani Industries Ltd. v.
 H
        RAHUL JAIN v. RAVE SCANS PVT. LTD. & ORS.                              1129


      Bank of Baroda & Anr., Company Appeal (AT)                               A
      (Insolvency) No. 82 of 2018; Swiss Ribbons Pvt. Ltd.
      & Anr. v. Union of India 2019 SCC Online SC 73 –
      referred to.
      CIVIL APPELLATE JURISDICTION: Civil Appeal No. 7940
of 2019.                                                                       B
      From the Judgment and Order dated 17.09.2019 of the National
Company Law Appellate Tribunal, New Delhi in Company Appeal (AT)
(Insolvency) No. 745 of 2018.
       Ramji Srinivasan, Sr. Adv., Rakesh Kumar, Ms. Preeti Kashyap,
P. K. Sachdeva, Ms. Sylona Mohapatra, Saurabh Mishra, Advs. for the            C
Appellant.
      Amit Sibbal, Sr. Adv., Pulkit Deora, Anup Jain, Udit Kishan Gupta,
Ms. Sylvine Sarmah, Sohan Kumar, Saksham Dhingra (for M/s. Udit
Kishan and Associates), Kunal Tandon, Ms. Niti Jain, Kush Chaturvedi,
Advs. for the Respondents.                                                     D
      The Judgment of the Court was delivered by
      S. RAVINDRA BHAT, J.
       1. The resolution applicant (hereafter “the appellant”) is aggrieved
by the decision of the National Company Law Appellate Board (hereafter         E
“NCLAT”) in regard to its directions modifying a resolution plan accepted
by the adjudicating authority (i.e. National Company Law Tribunal,
hereafter “NCLT” or “the adjudicating authority”). The Corporate
Insolvency Resolution Process (CIRP) was initiated against M/s. Rave
Scans Private Limited (hereafter the “Corporate Debtor”) under Section
                                                                               F
10 of the Insolvency and Bankruptcy Code, 2016 (“IBC” or “the Code”
for short). The revised resolution plan submitted by the appellant was
approved by the NCLT on 17th October, 2018. The second respondent,
M/s Hero Fincorp Ltd. (hereafter the “Financial Creditor” or “Hero”)
appealed against the NCLT’s order on grounds of discrimination between
financial creditors, which resulted in the NCLAT modifying the NCLT’s          G
final order. The question urged by the appellant is whether the finding
that the financial creditor was discriminated against, leading the NCLAT
to modify the adjudicating authority’s directions, and consequently
imposing greater financial burdens on the resolution applicant, is justified
in the circumstances.
                                                                               H
1130             SUPREME COURT REPORTS                           [2019] 13 S.C.R.


 A            2. The facts of the case are as follows. The CIRP was initiated
       on 25th January, 2017 against the Corporate Debtor under Section 10 of
       the IBC. The appellant was the resolution applicant of the Corporate
       Debtor, whose liquidation value was ascertained as 36 crores. Against
       the said amount, the appellant offered 54 crores to revive the Corporate
       Debtor in terms of the resolution plan. The resolution plan was then
 B
       revised and the revised resolution plan submitted by the appellant was
       approved by the adjudicating authority, i.e., the Principal Bench of the
       NCLT. This resolution plan was challenged before the NCLAT by the
       second respondent in the present appeal, Hero Fincorp Ltd. as being
       discriminatory. Discrimination was alleged on the ground that the secured
 C     financial creditors were provided with a higher percentage of their claim
       amounts; however, Hero had been allowed a lesser percentage of its
       admitted claim. Hero, who had dissented with the resolution plan, had
       been provided with 32.34% of its admitted claim, whereas other financial
       creditors had been provided with 45% of their admitted claims. The
       remarks column in the resolution plan showed that the plan was based
 D
       on ‘Maintained liquidation value (LV) under Regulation 38 of the
       Insolvency and Bankruptcy Board of India (Insolvency Resolution
       Process for Corporate Persons) Regulations, 2016. The reference herein
       was to the unamended Regulation 38, pertaining to the mandatory contents
       of a resolution plan.
 E            3. The NCLAT in its impugned order which set aside the NCLT’s
       directions and required the appellant to increase the liquidation value of
       the offer to Hero, relied on Central Bank of India v. Resolution
       Professional of the Sirpur Paper Mills Ltd. & Ors., Company Appeal
       (AT) (Insolvency) No. 526 of 2018 and Binani Industries Ltd. v. Bank
 F     of Baroda & Anr., Company Appeal (AT) (Insolvency) No. 82 of 2018,
       and noticed that Regulation 38 had been held to be discriminatory in
       these cases. Accordingly, an amendment was made on 5th October, 2018,
       and the provision in Regulation 38(1)(c) on liquidation value payable to
       financial creditors was deleted. The amended regulation was also
       considered by the Supreme Court in Swiss Ribbons Pvt. Ltd. & Anr. v.
 G     Union of India, 2019 SCC Online SC 73, which noticed that the
       amendment strengthens the rights of operational creditors by statutorily
       incorporating the principle of fair and equitable dealing of operational
       creditors’ rights, together with priority in payment over financial creditors.
       Swiss Ribbons (supra) also observed that the NCLAT, while looking
 H     into the viability and feasibility of resolution plans approved by the
        RAHUL JAIN v. RAVE SCANS PVT. LTD. & ORS.                                 1131
                 [S. RAVINDRA BHAT, J.]

committee of creditors, has always gone into the question of whether              A
operational creditors are given roughly the same treatment as financial
creditors, and if not, such plans have been rejected or modified so that
the rights of operational creditors are safeguarded.
       4. The order approving the resolution plan, which was impugned
before the NCLAT was passed by the adjudicating authority on                      B
17th October, 2018. The NCLAT held that this order failed to notice that
no resolution plan could be approved discriminating against the dissenting
financial creditor, in terms of the amended Regulation 38. The NCLAT
further held that the adjudicating authority failed to notice that the NCLAT
had declared the unamended Regulation 38(1)(c), which stipulated the
liquidation value for dissenting financial creditors as illegal. It was held      C
that the resolution plan in this instance, which had been approved by the
impugned order of the NCLT, did not conform to the test in Section
30(2)(e) of the IBC, and was discriminatory against similarly situated
‘Secured Creditors’.
       5. The NCLAT further observed that under Section 30(2)(b)(ii),             D
such differential treatment must only be made in such a manner as may
be specified by the Board, which shall not be less than the amount to be
paid to these creditors in accordance with Section 53(1) in the event of
liquidation of the corporate debtor. The NCLAT held that the amended
Regulation 38 would still be applicable, and the Corporate Debtor could           E
not take advantage of the repealed provision. In light of this reasoning,
the NCLAT held the resolution plan to be discriminatory and violative of
Section 30(2)(e) of the IBC, and directed that the successful resolution
applicant remove the discrimination by providing similar treatment to the
appellant before the NCLAT, as other similarly situated financial creditors.
                                                                                  F
       6. It was observed that the successful resolution applicant had
noticed that Regulation 38 was amended on 5th October, 2018; the
applicant, however, failed to bring this fact to the notice of the adjudicating
authority when the matter was taken up for approval, and also did not
amend the resolution plan to make it in accordance with the amended
Regulation 38. The grounds for discrimination alleged by the Corporate            G
Debtor were that firstly, Regulation 37(1) requires a resolution plan to
offer ‘maximization of value of its assets’, which is fulfilled by offering
54 crores against the liquidation value of 36 crores only; secondly,
Regulation 38(1)(c) mandatorily provided for the maintenance of the
liquidation value of dissenting financial creditors before the amendment          H
1132             SUPREME COURT REPORTS                         [2019] 13 S.C.R.


 A     dated 5th October 2018; thirdly, the committee of creditors, in its meeting,
       directed the resolution professional to seek a legal opinion on differential
       value of financial creditors. The committee of creditors accepted the
       opinion obtained by the resolution professional stating that liquidation
       value has to be maintained for dissenting creditors. Accordingly, in the
       next revised resolution plans dated 12th January, 2018, 16th February,
 B
       2018, and 5th October, 2018, the resolution applicant offered minimum
       liquidation value (not a percentage of the claim).
              7. It was urged by Mr. Ramji Srinivasan, learned senior counsel,
       that PSU banks had a higher stake in the total claim value and liquidated
       value of assets, having security of fixed assets, plant and machinery,
 C     debtors, inventory and personal guarantee, etc. On the other hand, NBFCs
       only had security against specific plant & machinery and the personal
       guarantee of the promoters. It was also argued that the resolution plan
       has been fully implemented and financial creditors (except Hero) have
       released security to the Corporate Debtor. Further, the senior counsel
 D     appearing on behalf of the Corporate Debtor argued that under Section
       30(2)(b)(ii), the resolution plan allows separate treatment of financial
       creditors who do not vote in favour of the resolution plan.
             8. Mr. Amit Sibal, learned senior counsel for the second respondent-
       Hero, urged that this court should not interfere with the impugned order.
 E     He relied on the observations in Swiss Ribbons and Section 30 of the
       IBC, to say that creditors falling within one description or class cannot
       be discriminated against. It was pointed out that the PSU banks’ dues
       were given primacy, inasmuch as all of them were given a settlement of
       45% of their admitted claims; however, the dissenting Financial Creditor
       (Hero) was provided with 32.34% of its admitted claim which is plainly
 F     discriminatory and contrary to the letter and spirit of the IBC.
             9. Mr. Sibal relied on the observations of this court in Swiss Ribbons
       (supra) that:
             “72. The aforesaid Regulation further strengthens the
 G           rights of operational creditors by statutorily
             incorporating the principle of fair and equitable
             dealing of operational creditors’ rights, together with
             priority in payment over financial creditors.”
             10. Section 30, which is relied upon by the respondents, and which
       was interpreted by the NCLAT, reads as follows:
 H
 RAHUL JAIN v. RAVE SCANS PVT. LTD. & ORS.                         1133
          [S. RAVINDRA BHAT, J.]

“30. (1) A resolution applicant may submit a resolution plan       A
to the resolution professional prepared on the basis of the
information memorandum.
(2) The resolution professional shall examine each resolution
plan received by him to confirm that each resolution plan—
(a) provides for the payment of insolvency resolution process      B
costs in a manner specified by the Board in priority to the
repayment of other debts of the corporate debtor;
(b) provides for the repayment of the debts of operational
creditors in such manner as may be specified by the Board
which shall not be less than the amount to be paid to the          C
operational creditors in the event of a liquidation of the
corporate debtor under section 53; (c) provides for the
management of the affairs of the Corporate debtor after
approval of the resolution plan; (d) the implementation and
supervision of the resolution plan;                                D
(e) does not contravene any of the provisions of the law for
the time being in force;
(f) conforms to such other requirements as may be specified
by the Board.
                                                                   E
(3) The resolution professional shall present to the committee
of creditors for its approval such resolution plans which
confirm the conditions referred to in sub-section (2).
(4) The committee of creditors may approve a resolution plan
by a vote of not less than seventy-five per cent. of voting
                                                                   F
share of the financial creditors.
(5) The resolution applicant may attend the meeting of the
committee of creditors in which the resolution plan of the
applicant is considered:
Provided that the resolution applicant shall not have a right      G
to vote at the meeting of the committee of creditors unless
such resolution applicant is also a financial creditor.
(6) The resolution professional shall submit the resolution plan
as approved by the committee of creditors to the Adjudicating
Authority.”                                                        H
1134             SUPREME COURT REPORTS                          [2019] 13 S.C.R.


 A            11. Section 30 lays out the duties of the resolution professional
       and the various steps that she or he has to take, as well as the
       considerations that are to weigh, in examining a resolution plan. The
       principle of fairness engrafted in the provision is that the plan should
       make a provision for repayment of debts of operational creditors having
       regard to the value, which shall not be less than what is prescribed by
 B
       the Board (i.e. the Insolvency Board), repayable in the event of liquidation,
       spelt out in Section 53. Section 30(3) requires the resolution professional
       to present the resolution plan to the committee of creditors and Section
       30(4) stipulates that approval shall be by a vote not less than 75% of the
       voting share of the financial creditors. Regulation 38, as it stood before
 C     the amendment and its substitution, read as follows:
             “38. Mandatory contents of the resolution plan.—
             (1) A resolution plan shall identify specific sources of funds
             that will be used to pay the-
 D            (a) insolvency resolution process costs and provide that the
             [insolvency resolution process costs, to the extent unpaid, will
             be paid] in priority to any other creditor;
              (b) liquidation value due to operational creditors and provide
             for such payment in priority to any financial creditor which
 E           shall in any event be made before the expiry of thirty days
             after the approval of a resolution plan by the Adjudicating
             Authority; and
             (c) liquidation value due to dissenting financial creditors and
             provide that such payment is made before any recoveries are
 F           made by the financial creditors who voted in favour of the
             resolution plan.”
             12. After its amendment, Regulation 38 now reads as follows:
             “38. Mandatory contents of the resolution plan.—
             (1) The amount due to the operational creditors under a
 G           resolution plan shall be given priority in payment over
             financial creditors.
              (1-A) A resolution plan shall include a statement as to how it
             has dealt with the interests of all stakeholders, including
             financial creditors and operational creditors, of the corporate
 H           debtor.”
        RAHUL JAIN v. RAVE SCANS PVT. LTD. & ORS.                             1135
                 [S. RAVINDRA BHAT, J.]

       13. In the present case, it is noticeable that no doubt, Hero was      A
provided with 32.34% of its admitted claim as it has dissented with the
plan. On the other hand, Tata Capital Financial Services Ltd. was provided
with 75.63% of its admitted claim; other financial creditors (Indian
Overseas Bank, Bank of Baroda and Punjab National Bank) were
provided with 45% of their admitted claims. Given that the resolution
                                                                              B
process began well before the amended regulation came into force (in
fact, January, 2017) and the resolution plan was prepared and approved
before that event, the wide observations of the NCLAT, requiring the
appellant to match the pay-out (offered to other financial creditors) to
Hero, was not justified. The court notices that the liquidation value of
the corporate debtor was ascertained at 36 crores. Against the said           C
amount, the appellant offered 54 crores. The plan was approved and,
except the objections of the dissenting creditor (i.e Hero), the plan has
attained finality. Having regard to these factors and circumstances, it is
held that the NCLAT’s order and directions were not justified. They are
hereby set aside; the order of the NCLT is hereby restored.
                                                                              D
       14. In view of the foregoing discussion, the appeal succeeds and
is allowed. In the circumstances, there shall be no order on costs.


Ankit Gyan                                                  Appeal allowed.
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