When can a financial creditor be offered Minimum Liquidation Value, Supreme Court answers

The Supreme Court has held that a financial creditor can be offered Minimum Liquidation Value under a resolution plan in cases where the corporate insolvency resolution process has begun well before the amendment to Regulation 38 of Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016, which came into existence on October 5, 2018..The Judgment was passed by a Division Bench of Justices Arun Mishra and S Ravindra Bhat in an appeal against an order passed by the National Company Law Appellate Tribunal (NCLAT)..Corporate Insolvency Resolution Process was initiated against the corporate debtor, M/s. Rave Scans Private Limited, under Section 10 of IBC in January 2017..The appellant, Ravi Jain was the resolution applicant of the corporate debtor whose liquidation value was ascertained at Rs 36 crores. Against this liquidation amount of Rs 36 crore, the appellant offered Rs. 54 crores to revive the Corporate Debtor in terms of the resolution plan..A resolution plan by the appellant was subsequently submitted to the adjudicating authority, i.e., the Principal Bench of the NCLT and approved..One of the Financial creditors, Hero Fincorp Ltd., challenged the approval before the NCLAT on the ground that the plan was discriminatory. Hero Fincorp, who had dissented with the resolution plan, alleged that the secured financial creditors were provided with a higher percentage of their claim amounts i.e. with 45% of their admitted claims while it had been allowed a lesser percentage of its admitted claim i.e. 32.34%..The remarks column in the resolution plan showed that the amount offered to Hero Fincorp was based on Minimum Liquidation Value under the unamended Regulation 38 of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016..The NCLAT set aside the NCLT order and directed the resolution applicant to increase the liquidation value of the offer to Hero..Assailing the NCLT order which was passed on October 17, 2018, the NCLAT held that the NCLT failed to notice that a resolution plan which discriminated against a dissenting financial creditor could not be approved in terms of the amended Regulation 38..The NCLAT observed that under Section 30(2)(b) (ii), such differential treatment must only be made in such a manner as may be specified by the Insolvency 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..NCLAT also observed that the appellant had noticed that Regulation 38 was amended on October 5, 2018, however, neither was it brought to the notice of the NCLT when the matter was taken up for approval nor was the resolution plan amended accordingly..In light of this, the NCLAT held that the resolution plan was discriminatory and violative of Section 30(2)(e) IBC and directed that the successful resolution applicant to remove the discrimination by providing similar treatment to the appellant..After hearing the counsel appearing for the appellant, corporate debtor, and Hero Fincorp, the Supreme Court noticed that while Hero Fincorp was provided with 32.34% of its admitted claim as it had dissented with the plan, Tata Capital Financial Services Ltd. was provided with 75.63% of its admitted claim and other financial creditors such as Indian Overseas Bank, Bank of Baroda and Punjab National Bank were provided with 45% of their admitted claims..It further noted that the resolution plan was approved and, except the objections of the dissenting creditor i.e Hero Fincorp, had even attained finality..Given the fact that the resolution process began well before the amended regulation came into force i.e. January 2017 and the resolution plan was prepared and approved before the amended Regulation 38 which came into existence on October 5, 2018, the Court opined that the NCLAT order requiring the appellant to update its resolution plan was not justified..It said,.“Given that the resolution 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 payout (offered to other financial creditors) to Hero, was not justified.”.The Court, therefore, ordered,.“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.”.Read the Oder: