important questions as to the role of resolution applicants, resolution professionals, the Committee of Creditors that are constituted under the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as “the Code”), and the jurisdiction of the National Company Law Tribunal (hereinafter referred to as “NCLT”/“Adjudicating Authority”) and the National Company Law 2 Appellate Tribunal (hereinafter referred to as “NCLAT”/“Appellate Tribunal”), qua resolution plans that have been approved by the Committee of Creditors. The constitutional validity of Sections 4 and 6 of the Insolvency and Bankruptcy Code (Amendment) Act, 2019 (hereinafter referred to as the “Amending Act of 2019”) have also been challenged.=

REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL ORIGINAL/APPELLATE JURISDICTION
CIVIL APPEAL NO. 8766-67 OF 2019
DIARY NO.24417 OF 2019
Committee of Creditors of Essar Steel India Limited
Through Authorised Signatory …Appellant
Versus
Satish Kumar Gupta & Ors. …Respondents
WITH
CIVIL APPEAL NOS.5634-5635 OF 2019
CIVIL APPEAL NOS.5636-5637 OF 2019
CIVIL APPEAL NOS.5716-5719 OF 2019
CIVIL APPEAL NO.5996 OF 2019
CIVIL APPEAL NO.6266 OF 2019
CIVIL APPEAL NO.6269 OF 2019
WRIT PETITION (CIVIL) NO.1055 OF 2019
WRIT PETITION (CIVIL) NO.1064 OF 2019
WRIT PETITION (CIVIL) NO.1049 OF 2019
WRIT PETITION (CIVIL) NO.1050 OF 2019
WRIT PETITION (CIVIL) NO.1057 OF 2019
WRIT PETITION (CIVIL) NO.1058 OF 2019
WRIT PETITION (CIVIL) NO.1061 OF 2019
WRIT PETITION (CIVIL) NO.1060 OF 2019
WRIT PETITION (CIVIL) NO.1056 OF 2019
CIVIL APPEAL NO.6409 OF 2019
WRIT PETITION (CIVIL) NO.1063 OF 2019
CIVIL APPEAL NOS.6433-6434 OF 2019
WRIT PETITION (CIVIL) NO.1066 OF 2019
1
WRIT PETITION (CIVIL) NO.1087 OF 2019
WRIT PETITION (CIVIL) NO.1110 OF 2019
WRIT PETITION (CIVIL) NO.1113 OF 2019
WRIT PETITION (CIVIL) NO.1121 OF 2019
CIVIL APPEAL NO._8768_OF 2019
DIARY NO.31409 OF 2019
CIVIL APPEAL NO.7266 OF 2019
CIVIL APPEAL NO.7260 OF 2019
WRIT PETITION (CIVIL) NO.1246 OF 2019
CIVIL APPEAL NO._8769_OF 2019
DIARY NO.36838 OF 2019
WRIT PETITION (CIVIL) NO.1296 OF 2019
J U D G M E N T
R.F. Nariman, J.
Delay Condoned in Civil Appeal Diary No. 31409 of 2019 and
Civil Appeal Diary No. 36838 of 2019. I.A. No. 102638 of 2019 in Civil
Appeal Diary No. 24417 of 2019 for Permission to File Appeal
allowed. Appeal Admitted.

  1. This group of appeals and writ petitions raises important
    questions as to the role of resolution applicants, resolution
    professionals, the Committee of Creditors that are constituted under
    the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to as
    “the Code”), and last, but by no means the least, the jurisdiction of the
    National Company Law Tribunal (hereinafter referred to as
    “NCLT”/“Adjudicating Authority”) and the National Company Law
    2
    Appellate Tribunal (hereinafter referred to as “NCLAT”/“Appellate
    Tribunal”), qua resolution plans that have been approved by the
    Committee of Creditors. The constitutional validity of Sections 4 and 6
    of the Insolvency and Bankruptcy Code (Amendment) Act, 2019
    (hereinafter referred to as the “Amending Act of 2019”) have also
    been challenged. These appeals and writ petitions are an aftermath
    of this Court’s judgment dated 04.10.2018, reported as ArcelorMittal
    India Private Limited v. Satish Kumar Gupta (2019) 2 SCC 1.
  2. On 02.08.2017, the NCLT, Ahmedabad admitted Company
    Petition (I.B.) No. 39 of 2017 filed by Standard Chartered Bank
    together with a Petition filed by the State Bank of India under Section
    7 of the Code. One Satish Kumar Gupta was appointed as the interim
    resolution professional, who was later confirmed as resolution
    professional. On 06.10.2017, the resolution professional by way of an
    advertisement in the Economic Times, invited expressions of interest
    from all interested resolution applicants to present resolution plans for
    rehabilitating the corporate debtor, namely, Essar Steel India Limited.
    On 24.12.2017, the resolution professional issued a request for
    proposal (hereinafter referred to as “RFP”), inter alia, inviting
    resolution plans for the aforesaid corporate debtor, which was later
    amended on 08.02.2018. Two resolution plans were submitted on
    3
    12.02.2018, one by ArcelorMittal India Private Limited (hereinafter
    referred to as “ArcelorMittal”) and another by Numetal Limited
    (hereinafter referred to as “Numetal”) both of which were found to be
    ineligible under Section 29-A of the Code. On 02.04.2018, resolution
    plans were then submitted by ArcelorMittal, Numetal and one
    Vedanta Limited (hereinafter referred to as “Vedanta”). The resolution
    plan of ArcelorMittal specifically provided for an upfront payment of
    INR 35,000 crores in order to resolve debts amounting to INR 49,213
    crores. It was stated that unsecured financial creditors shall be paid
    an aggregate amount of 5% of their admitted claims. Apart from the
    above, INR 8,000 crores of fresh capital infusion by way of capex and
    working capital was also to be infused. INR 3,339 crores – being the
    aggregate admitted claims of operational creditors, other than
    workmen and employees, was to be paid to the extent of INR 196
    crores, but only to trade creditors and government creditors. Small
    trade creditors, defined as “having claims of less than one crore”
    were to be honoured in full, as was the claim of workmen and
    employees of the corporate debtor, amounting to INR 18 crores.
    Importantly, the resolution applicant empowered the Committee of
    Creditors to decide the manner in which the financial package being
    offered would be distributed among the secured financial creditors.
    Standard Chartered Bank, which was stated to be an unsecured
    4
    creditor, was to be paid an aggregate amount of 5% of its admitted
    claims. On 19.04.2018, the Adjudicating Authority directed the
    Committee of Creditors of the corporate debtor, which by then had
    been set up by the interim resolution professional, to consider the
    eligibility of the aforesaid resolution applicants.
  3. On 10.09.2018, Standard Chartered Bank was classified as a
    secured financial creditor of the corporate debtor by the resolution
    professional. On 04.10.2018, this Court declared both ArcelorMittal
    and Numetal ineligible by virtue of their resolution plans being hit by
    Section 29-A of the Code. However, an order was passed under
    Article 142 of the Constitution, stating that one more opportunity be
    granted to both ArcelorMittal and Numetal to pay off the NPAs of their
    related corporate debtors within two weeks of the Supreme Court
    judgment, failing which the corporate debtor would go into liquidation.
    On 18.10.2018, ArcelorMittal informed the resolution professional and
    the Committee of Creditors that it had made payments as per the
    Supreme Court’s judgment dated 04.10.2018. However, Numetal did
    not make any such payment. As a result, on 19.10.2018, ArcelorMittal
    resubmitted its resolution plan of 02.04.2018, which was then
    evaluated by the Committee of Creditors on the same date –
    ArcelorMittal being declared as the highest evaluated resolution
    5
    applicant vis-a-vis Vedanta. On 25.10.2018, the final negotiated
    resolution plan of ArcelorMittal was approved by the Committee of
    Creditors by a 92.24% majority. After several proceedings before the
    NCLT and the NCLAT, the NCLT, by its judgment dated 08.03.2019
    disposed of the application to allow the resolution plan filed by
    ArcelorMittal as follows:
    “…we are of the view that the dues of the operational
    creditors must get at least similar treatment as
    compared to the dues of the financial creditors on the
    principle of equity and fair play as well as the
    Wednesbury Principle of Unreasonableness and the
    Doctrine of Proportionality, so as to avoid disparity in
    making payments to the operational creditors having
    debt value of Rs.1 crore and above (a token of Re.1)
    and the allegation of discriminatory practice could be
    ruled out…Hence, in our view, if a reasonable formula
    for apportionment is worked out so that 85% of the
    amount offered by the resolution applicant is distributed
    among the financial creditors and the remaining 15% of
    the amount is distributed amongst the rest of the
    operational creditors, then the entire claim of the
    operational creditors, which comes to around Rs.4700
    crore can be substantially paid off or at least the
    operational creditors can get 50% of their admitted and
    undisputed claim in the light of the judgment of the
    Hon’ble Supreme Court in Chitra Sharma v. Union of
    India (supra). Such object can be achieved, if the
    financial creditor and the members of the CoC are willing
    to sacrifice the interest component on their principal
    loan, because it is established position in the record that
    the principal loan liability of the corporate debtor
    company comes to around Rs.35,000 crore in the year
    2017 when these IB Petitions were admitted, which
    includes the interest component also and by giving such
    hair-cut to the interest component to the extent possible
    by providing provision for 15% amount for the other
    operational creditors and stakeholders, we are of the
    6
    view that debts of the entire operational creditors can be
    satisfied in a reasonable and fair manner and then such
    I.A.s preferred by the operational creditors would also
    become infructuous and this Adjudicating Authority
    would not be required to deal with the merits of each and
    every I.A. Thus, this would be beneficial to avoid
    multiplicity of legal proceedings and to remove any
    impediment for effective implementation of the resolution
    plan and to achieve the main theme and object of the
    present I & B Code.”
  4. By an interim order dated 20.03.2019 in the appeals that were
    filed before NCLAT, the NCLAT directed the Committee of Creditors
    to take a decision on certain suggestions that were made. Pursuant
    to this, on 27.03.2019 the Committee of Creditors decided – voting
    having concluded on 30.03.2019 – to appeal against the NCLAT’s
    order, and, by a majority of 70.73% approved making an ex gratia
    payment of INR 1,000 crores to operational creditors above INR 1
    crore. Appeals filed against the interlocutory orders of the NCLAT
    were then heard by this Court, which by its order dated 12.04.2019,
    inter alia, directed non-implementation of the judgment dated
    08.03.2019 of the NCLT and expeditious disposal of the appeal
    before the NCLAT.
  5. By its final judgment dated 04.07.2019, the NCLAT held that:
    (i) In a resolution plan there can be no difference between a
    financial creditor and an operational creditor in the matter of payment
    of dues, and that therefore, financial creditors and operational
    7
    creditors deserve equal treatment under a resolution plan.
    Accordingly, the NCLAT has re-distributed the proceeds payable
    under the approved resolution plan as per the method of calculation
    adopted by it so that all financial creditors and operational creditors
    be paid 60.7% of their admitted claims;
    (ii) Securities and security interest is irrelevant at the stage of
    resolution for the purposes of allocation of payments, thereby
    directing that each financial creditor (whether secured or unsecured)
    with a claim equal to or more than INR 10 lakhs be paid 60.7% of its
    admitted claim irrespective of their security interest;
    (iii) Operational creditors by definition have separate classes within
    themselves and can be classified into sub-classes for the purpose of
    distribution (while rejecting any classification amongst the financial
    creditors) on the basis of the admitted amounts thereby directing that
    operational creditors with a claim of equal to or more than INR 1 crore
    be paid 60.268% of their admitted claims.
    (iv) Certain additional claims of operational creditors (some of
    which were highly belated and/or without sufficient proof) were
    admitted, such that the admitted operational debt of approximately
    INR 5,058 crores at the time of the approval of the approved
    8
    resolution plan became an operational debt of approximately INR
    19,719.20 crores.
    (v) The profits generated by the corporate debtor during the
    Corporate Insolvency Resolution Process (hereinafter referred to as
    the “CIRP”) would be distributed equally amongst the financial
    creditors and operational creditors of the corporate debtor.
    (vi) A sub-committee or core committee cannot be constituted
    under the Code, being a foreigner thereto. The Committee of
    Creditors alone are to take all decisions by themselves.
    (vii) The Committee of Creditors has not been empowered to decide
    the manner in which the distribution is to be made between one or
    other creditors, as there would be a conflict of interest between
    financial and operational creditors, financial creditors favouring
    themselves to the detriment of operational creditors.
    (viii) Section 53 of the Code cannot be applied during the corporate
    resolution process but will apply only at the stage of liquidation.
    (ix) Claims that have been decided by the resolution professional
    and affirmed by the Adjudicating Authority or the Appellate Tribunal
    are final and binding on all creditors. However, claims which have not
    been decided by the Adjudicating Authority or the Appellate Tribunal
    9
    on merits may be decided by an appropriate forum in terms of
    Section 60(6) of the Code.
    (x) Financial Creditors in whose favour guarantees were executed,
    as their total claim stands satisfied to the extent of the guarantee,
    cannot re-agitate such claims as against the principal borrower.
  6. We have heard detailed arguments made by Shri Gopal
    Subramanium and Shri Rakesh Dwivedi, learned senior counsel, on
    behalf of the Committee of Creditors of Essar Steel India Limited.
    They have argued that the provisions of the Code provide for a broad
    classification of creditors as financial creditors and operational
    creditors on the basis of the nature of the transaction between
    creditors and a corporate debtor. They have further argued that the
    Code does not mandate identical treatment of differently situated
    creditors either inter se within financial creditors, who may be secured
    or unsecured, and/or financial creditors vis-a-vis operational creditors.
    The Code only posits equitable treatment of different classes of
    creditors recognising that different classes deserve differential
    treatment. According to them, financial creditors as a class have a
    superior status as against operational creditors, the same being the
    case with secured creditors vis-a-vis unsecured creditors. For this
    purpose, they relied upon certain provisions of the Code. They further
    10
    argued that the general law of the land as contained in Section 48 of
    the Transfer of the Property Act, 1882 and Section 77 of the
    Companies Act, 2013 would not have been taken away sub-silentio
    by the Code and have relied upon a large number of authorities for
    this purpose. They also referred to and relied upon the UNCITRAL
    Legislative Guide on Insolvency Law (hereinafter referred to as the
    “UNCITRAL Legislative Guide”), which was referred to by this Court
    in Swiss Ribbons Private Limited v. Union of India (2019) 4 SCC
    17, and upon a report by the International Monetary Fund titled
    “Orderly and Effective Insolvency Procedures – Key Issues”. They
    also referred to and relied upon judgments under Article 14 of the
    Constitution of India which highlight the fact that classification is
    permissible so as to differentiate persons who are unequal, who
    cannot then be treated equally. They also argued, relying strongly
    upon the IMF paper on “Development of Standards for Security
    Interest” by Pascale De Boeck and Thomas Laryea, in addition to
    several expert reports, that classification of creditors based on the
    nature of the debt and/or security interest is a sine qua non for any
    Insolvency Code. They argued that if secured financial creditors are
    to be treated at par with unsecured creditors, such secured creditors
    would rather vote for liquidation rather than Corporate Resolution,
    contrary to the main objective sought to be achieved by the Code.
    11
    They then argued that the health of the financial sector is critical for
    the overall health and growth of the economy, which would otherwise
    be subverted, if the impugned judgment were to be given effect. They
    relied strongly upon paragraphs 27 and 28 of Swiss Ribbons
    (supra), in particular, which differentiated between secured and
    unsecured creditors, most financial creditors being secured creditors
    and most operational creditors being unsecured. They also argued
    that the law laid down in K. Sashidhar v. Indian Overseas Bank
    2019 SCCOnline SC 257, had made it clear that there is a judicial
    hands-off when it comes to the commercial wisdom of the Committee
    of Creditors, which has been directly infracted by the impugned
    judgment, which has held that the Committee of Creditors has
    nothing to do with the distribution of amounts which are infused by
    the resolution applicant for payment of the corporate debtor’s
    erstwhile debts. They relied heavily upon the Bankruptcy Law
    Reforms Committee Report, 2015 (hereinafter referred to as the
    “BLRC Report”) to buttress this submission, as well as the UNCITRAL
    Legislative Guide. They then submitted that a resolution plan is a
    consent-based plan proposed by the resolution applicant for a
    corporate debtor. The counterparty to such a plan is the Committee of
    Creditors, which is required to give a minimum consent of 66% voting
    share, which consent then becomes the basis for the Adjudicating
    12
    Authority to approve a resolution plan for the corporate debtor. Once
    approved by the Adjudicating Authority, such plan becomes binding
    on all stakeholders as is mentioned by Section 31 of the Code.
    Therefore, any modification, as has been done by the NCLAT, of such
    plan is illegal. They then argued that the Committee of Creditors has
    both the power and the jurisdiction to deal with all commercial
    aspects of a resolution plan, including distribution of proceeds under
    such plan, and also referred to and relied upon the recent
    amendments made to Section 30 of the Code. They stated that the
    ArcelorMittal plan, as amended, looked after all stakeholders
    including operational creditors, and stated that a staggering amount
    of INR 55,000 crores qua operational creditors was paid during the
    600 odd days of CIRP being carried out, operational creditors whose
    claims were above INR 1 crore, now being paid approximately 20% of
    their admitted dues. They also highlighted the fact that the secured
    creditors have lost about INR 17,000 crores of interest in the last
    three years due to the account of the corporate debtor having been
    classified as NPA. They then argued that the setting up of a subcommittee by the Committee of Creditors is permissible under the
    Code, and referred to certain judgments to buttress this proposition.
    They further argued that no decision-making power was delegated to
    the sub-committee, nor did the sub-committee at any time decide or
    13
    even recommend on distribution of amounts. They then argued that
    the NCLAT admitted various rejected/disputed/estimated claims worth
    INR 13,767 crores, which was more than the amount originally
    claimed by operational creditors. Various instances of non-application
    of mind were pointed out by which claims worth INR 11,278, which
    were not yet crystallized, were admitted by the NCLAT for payment,
    and various examples of double payment were also given. It was also
    argued that the NCLAT erroneously permitted several disputed claims
    to be raised outside the provisions of the Code after approval of the
    resolution plan, by referring to and relying upon Section 60(6) of the
    Code, which merely saved limitation for barred claims. They then
    argued that extinguishment of the right of creditors against individual
    guarantees extended by the promoters/promoter group of the
    corporate debtor was wholly illegal being contrary to several
    judgments of this Court and contrary to the terms of the guarantees
    themselves. They further argued that the profits that were made
    during the CIRP can obviously not be used for payment of the debts
    of the corporate debtor, as has been ordered by the NCLAT.
    Ultimately, according to the learned counsel, the impugned NCLAT
    judgment deserves to be set aside because it has curtailed the
    authority of the Committee of Creditors; expanded the jurisdiction of
    the Adjudicating Authority as well as the NCLAT beyond the bounds
    14
    contained in the Code; and has transgressed the most basic tenet of
    the Committee of Creditors’ commercial wisdom being reflected by an
    over 66% majority vote, which has been nullified by the NCLAT by
    completely modifying and substituting the resolution plan approved by
    the Committee of Creditors.
  7. Shri Shyam Divan, learned senior advocate appearing on
    behalf of the State Bank of India, has supported the submission made
    on behalf of the Committee of Creditors of Essar Steel India Limited.
    According to the learned senior advocate, whereas his client and
    other secured creditors are secured to the extent of 99.66% of their
    outstanding dues, the only security of Standard Chartered Bank is a
    pledge of the shares held by the corporate debtor in an offshore
    Mauritian subsidiary, namely Essar Steel Offshore Limited
    (hereinafter referred to as “ESOL”), and the fair value of ESOL
    pledged shares has been determined at only INR 24.86 crores as
    against the total outstanding admitted dues of INR 3487.10 crores
    (being 0.7% of the total admitted debt of Standard Chartered Bank).
    Thus, according to him, Standard Chartered Bank is an unsecured
    creditor to the extent of INR 3462.14 crores, and as against a sum of
    INR 60.71 crores which was payable under the resolution plan as
    approved by the Committee of Creditors, the NCLAT has now upped
    15
    this figure to approximately INR 2160 crores completely beyond its
    limited jurisdiction under the Code. Apart from the above, he also
    argued that Standard Chartered Bank is precluded from raising any
    challenge to the constitution of a sub-committee as it had participated
    in several meetings in which it raised no objection to the subcommittee, and had in fact requested to be a part of the subcommittee. He then argued that negotiations that were undertaken by
    the sub-committee was in accordance with the mandate of the
    Committee of Creditors, which alone took all decisions; the subcommittee merely being an executive arm of the Committee of
    Creditors.
  8. Shri Kapil Sibal, appearing on behalf of the Standard Chartered
    Bank, defended the NCLAT judgment on all aspects. According to
    him, the offer made by ArcelorMittal was to make a payment of INR
    42,000 crores as an upfront amount in order to pay 100% of the
    principal outstanding of the secured financial creditors of the
    corporate debtor. That this sum came to be offered only as a result of
    an offer made by Numetal on 07.09.2018 to pay INR 37,000 crores
    as upfront payment to secured financial creditors. According to
    learned counsel, the sum of INR 42,000 crores cannot be worked out
    unless the principal amount owed to Standard Chartered Bank is also
    16
    included in the said figure. The figure of INR 42,000 crores was
    stated by the counsel of the Committee of Creditors before this
    Hon’ble Court, in the final hearing which took place before the
    judgment in ArcelorMittal India (supra), and that this sum could be
    the minimum value of payment with a scope for further negotiations.
    However, what ultimately turned out is a payment of a lesser value,
    namely INR 39,500 crores as upfront, INR 2,500 crores being added
    as an eyewash towards Guaranteed Working Capital Adjustment. The
    reason this was an eyewash is because Odisha Slurry Pipeline
    Infrastructure Limited (hereinafter referred to as “OSPIL”), a wholly
    owned subsidiary of the corporate debtor, owned a slurry pipeline.
    ArcelorMittal, in order to ensure unhindered usage of the said slurry
    pipeline, agreed that it would acquire the debts of OSPIL. In order to
    achieve such acquisition of the debts of OSPIL, the Core Committee
    of Creditors relieved ArcelorMittal from the solemn offer made to the
    Supreme Court of India to pay upfront a sum of INR 42,000 crores,
    and reduced from this said amount, a sum of INR 2,500 crores. Thus,
    the Core Committee’s decision, as ratified by the Committee of
    Creditors, was to accept a sum lesser than that guaranteed as
    upfront payment by ArcelorMittal. Shri Sibal then trained his guns
    against the very formation of a Core Committee/Sub-Committee,
    stating that it is against the provisions of the Code, and that as
    17
    originally conceived, it was only to facilitate representation before the
    Adjudicating Authority, which was over, in any case, by 31.05.2018.
    The Core Committee however went on conducting secret
    negotiations with ArcelorMittal by which it buried Standard Chartered
    Bank’s debt almost completely. This was done by reducing Standard
    Chartered Bank’s entitlement of INR 2585 crores (INR 2646 crores
    minus INR 61 crores), if it were to have outstanding payments made
    on the basis of value of debt instead of value of security. In any case,
    it was further argued that the resolution plan of ArcelorMittal was itself
    flawed in that it would be contrary to Regulation 38(1A) of the
    Insolvency and Bankruptcy Board of India (Insolvency Resolution
    Process for Corporate Persons) Regulations, 2016 (hereinafter
    referred to as the “2016 Regulations”), as it did not deal with the
    interests of all stakeholders. It would also be contrary to the RFP that
    was issued on 24.12.2017, clause 4.6.1(d) of which stated that the
    resolution plan should have contained a statement as to how it would
    deal with the interest of all stakeholders including, but not limited to,
    break up of amounts to be paid to secured financial creditors,
    unsecured financial creditors and operational creditors, all of which
    was left, thanks to secret negotiations with ArcelorMittal by the
    resolution plan to the Committee of Creditors. Learned counsel then
    argued that under the provisions of the Code, the role of the
    18
    Committee of Creditors is limited to considering the feasibility and
    viability of the resolution plan, which does not include the manner of
    distribution of the amount payable by the resolution applicant to the
    erstwhile creditors of the corporate debtor. In any event, the decision
    of the Committee of Creditors on the manner of distribution in the
    facts of this case is illegal and arbitrary, as once a creditor is
    classified as a financial creditor, such creditor is entitled to equal
    treatment with all other financial creditors, irrespective of whether it is
    secured or unsecured. For this purpose, the learned senior advocate
    relied upon the UNCITRAL Legislative Guide as well as the BLRC
    Report, 2015. According to the learned senior advocate, Parliament
    has advisedly chosen not to create different classes of financial or
    operational creditors when it comes to the process of resolution of
    debts; and importance is given to the value of debt, as opposed to,
    the value of security which is given importance only when the
    liquidation process is to take place. He argued that Section 53 of the
    Code would apply only during liquidation and not at the stage of
    resolving insolvency as is clear from the fact that “secured creditor”
    as defined by Section 3(30) of the Code is used only in Section 53 of
    the Code which is contained in Chapter III entitled “Liquidation
    Process” and not at all in Chapter II of the Code which is entitled
    “Corporate Insolvency Resolution Process”. In Chapter II, only
    19
    financial and operational creditors, as defined, are spoken about. In
    point of fact, in the 17th meeting of the Committee of Creditors held on
    09.08.2018, the Committee of Creditors had earlier decided that the
    upfront payment made shall be divided amongst financial creditors on
    the basis of their voting shares, which in turn is fixed on the basis of
    the debt that is owed to each one of them. He further argued that the
    Committee of Creditors could not possibly decide the manner of
    distribution as it would give rise to a serious conflict of interest, as the
    majority may get together to ride roughshod over the minority. He
    further argued that no categorisation can be made based on the
    security interest of financial creditors, which security interest may
    itself vary from first charge holders to second charge holders and
    then to subservient and residual charge holders. The fact that
    Standard Chartered Bank has been recognised, albeit only on
    10.09.2018, as a secured financial creditor by the resolution
    applicant, is not challenged by any of the other financial creditors.
    Further, the valuation of pledged shares at INR 24.86 crores is itself a
    flawed evaluation, the actual value of the shares being in excess of
    US $600 million.
  9. Shri Sibal then took us to the Amending Act of 2019 and
    Section 6 of the Amending Act of 2019 in particular, which amended
    20
    Section 30 of the Code, shortly after the judgment of NCLAT in the
    present case. This amendment was made in the Code with effect
    from 16.08.2019. Shri Sibal’s first argument is that the aforesaid
    amendment would not apply to the facts of the present case, in as
    much as the amendment made is prospective in nature. Further, even
    under Explanation 2 that has been added by the amendment, the
    facts of the present case do not fall within sub-clauses (i) to (iii) of the
    aforesaid Explanation. A reading of the amended Section 30(2)(b)
    together with the Explanations contained therein, and the amendment
    of Section 30(4) would leave nobody in any manner of doubt that the
    purpose of the amendment was to get over the NCLAT judgment in
    order that the huge amount of around INR 2,100 crores, that is
    payable to a private foreign bank namely Standard Chartered Bank,
    gets reduced to around INR 61 crores, so that nationalised banks and
    other entities in which the Government has an interest may get a
    larger share of the pie to the detriment of Standard Chartered Bank.
    The legislature has, therefore, overstepped the separation of powers
    boundaries to step in and legislatively adjudicate the facts of a
    particular case. Even otherwise, according to learned counsel, the
    provision is an arbitrary exercise of power which brings in Section 53,
    which is applicable only when the corporate debtor gets liquidated,
    into the Corporate Resolution Process, contrary to the original
    21
    scheme of the Code. Also, Explanation 1 directly interferes with the
    judicial function and cannot state that a distribution shall be fair and
    equitable, which can only be decided by the Adjudicating Authority
    and not by Parliament. Also, the amendment made to Section 30(4)
    cannot possibly include value of security interest of a secured creditor
    within the expression “feasibility and viability” which has been done
    only in order that it be applied to the present case.
  10. Shri Arvind Datar supplemented the arguments of Shri Sibal
    and also appeared on behalf of the Standard Chartered Bank. He
    argued that the loan by Standard Chartered Bank to the wholly
    owned subsidiary of the corporate debtor is also a loan towards the
    project asset of the corporate debtor and that the State Bank of India
    was fully aware of such lending that was availed of by the corporate
    debtor. The wholly owned subsidiary is a Special Purpose Vehicle in
    order to ensure availability of coal for the corporate debtor to cater to
    enhanced production capacity.
  11. He elaborated on the meaning of the expression “modifications”
    contained in Regulation 39(3) of the 2016 Regulations, arguing that
    the power to make modifications does not include the power to
    discriminate among creditors who are equally situated. Also, the
    Committee of Creditors cannot make rankings among financial
    22
    creditors or otherwise create a class within a class. He reiterated that
    the status of Standard Chartered Bank as a secured financial creditor
    has not been disputed by any member of the Committee of Creditors.
  12. Shri Ranjit Kumar, learned senior advocate appearing on behalf
    of Ideal Movers Limited, an operational creditor of the corporate
    debtor, stated that the admitted claim by the resolution professional
    was INR 178,50,51,792, and the original resolution plan contained
    nothing by way of repayment to his client. It is only after the NCLT
    judgment when INR 1,000 crores extra was paid by ArcelorMittal for
    operational creditors generally, that his client would now receive
    20.5% of the admitted claim. Of course under the NCLAT judgment,
    he would stand to gain much more. He argued from a reading of the
    preamble of the Code and some of its provisions that a key objective
    of the Code is to ensure that the corporate debtor goes on doing its
    business as a going concern during the CIRP as a result of which a
    large number of operational creditors have to be paid their dues –
    such as workmen, electricity dues, etc. It is for this reason that the
    CIRP has to ensure the balancing of interest of all stake holders
    which can only be achieved by a feasible and viable resolution plan
    which is capable of effective implementation. He, therefore, argued
    that the process of revival and the process of liquidation are distinct
    23
    and separate and have been so treated by the Code. This being so,
    priorities of payment which apply in liquidation obviously cannot apply
    when the corporate debtor is being run as a going concern as
    otherwise secured creditors alone will be paid and not operational
    creditors who are necessary for the running of the business. This
    stems from the fact that the insolvency resolution process is to
    maximise the value of assets of corporate debtors whereas the
    liquidation process is to recover outstanding dues by selling the
    assets of the corporate debtor. He relied strongly on certain
    observations in Swiss Ribbons (supra) to buttress the aforesaid
    proposition. He also argued that the UNCITRAL Legislative Guide,
    being a guide to legislation, ought not to be looked at once the Code
    has been enacted. He then argued, that it is obvious that the
    Amending Act of 2019 has been made in a great hurry in order that
    the NCLAT judgment be neutralised by law. This is clear from the fact
    that the NCLAT judgment is dated 04.07.2019 and the Amending Act
    of 2019 was passed only one month later i.e. on 06.08.2019. No
    Standing Committee was consulted, as was the case of all previous
    amendments made to the Code, resulting in completely arbitrary
    provisions being inserted. He trained his guns against Section 4 of
    the Amending Act of 2019, arguing that timelines cannot be imposed
    or stipulated for the adjudication of disputes by any court, least of all
    24
    the Supreme Court of India. The period of time taken in court
    proceedings cannot possibly be included within a timeframe as it
    would then nullify the role of the Adjudicating Authority and the
    Appellate Tribunal, and would defeat the primary object and purpose
    of the Code, which is resolution rather than liquidation.
  13. Shri Harin P. Raval, learned senior advocate appearing on
    behalf of Kamaljit Singh Ahluwalia in Writ Petition (Civil) No.1058 of
    2019 also assailed the Amending Act of 2019. Apart from the
    arguments made by Shri Sibal and Shri Ranjit Kumar, he also argued
    that the amendments made in Section 30 would be contrary to the
    rationale and design of the BLRC Report, 2015. He also added that
    the Amending Act of 2019, insofar as it applied retrospectively, would
    be constitutionally infirm as it cannot be said that the amendments
    made thereto are in any manner clarificatory but are new substantive
    amendments.
  14. Shri A.K. Gupta, learned advocate appearing for L&T
    Infrastructure Finance Co. Limited in Civil Appeal No.6409 of 2019,
    assailed the classification of his client as an operational creditor and
    stated that, on facts, the appellant had entered into a facility
    agreement, sanctioning a term loan of INR 75 crores to Essar Power
    Gujarat Limited, a subsidiary of the corporate debtor. The borrower
    25
    then entered into a Promoter Obligation Agreement by which one
    Essar Power Limited undertook an obligation to arrange for cheques
    from the corporate debtor. INR 62 crores of such post-dated cheques
    were issued in favour of this appellant, as a result of which this
    appellant is also entitled to be classified as a financial creditor and
    not an operational creditor. He thus assailed the finding of the
    resolution professional, the NCLT and the NCLAT on this aspect of
    his case.
  15. Shri Mishra, learned advocate, appeared on behalf of Dakshin
    Gujarat Vij Company, in which he submitted that the NCLAT had
    rightly directed that the claim of his client should be considered with
    all other creditors, and prayed in the alternative that directions be
    issued that his client be entitled to recover the amount claimed,
    subject to the decision of the court, from the corporate debtor as a
    going concern. Similar were the submissions made by Smt.
    Ramachandran on behalf of the Gujarat Energy Transmissions
    Corporation Limited. Shri Maninder Singh, learned senior counsel,
    appeared on behalf of the State of Gujarat and supported paragraph
    196 of the NCLAT judgment by which his client would be paid 60.26%
    of Sales Tax dues. Shri Mukul Rohatgi, learned senior advocate
    appearing on behalf of Mr. Prashant Ruia supported the findings of
    26
    the NCLAT, insofar as the NCLAT held that the personal guarantees
    given by his client had become ineffective in view of the payment of
    the debt by way of resolution to the original lenders. Further, Shri
    Rohatgi also argued that the right of subrogation and the right to be
    indemnified conferred on a guarantor under the Indian Contract Act
    would continue to exist in the absence of a positive waiver of such
    right by the said guarantor.
  16. Shri Harish Salve, learned senior advocate appearing on behalf
    of ArcelorMittal, referred to the appeal filed by the Standard
    Chartered Bank, being Civil Appeal No. 6433 of 2019, and stated that
    the remedy sought therein was restricted to quashing the impugned
    judgment to the extent of paragraph 221 thereof which had held that
    financial creditors in whose favour guarantees were executed, could
    not re-agitate their claims against the principal borrower, as their total
    claim stands satisfied to the extent of the guarantee, and that
    therefore all the arguments made by Shri Sibal on behalf of Standard
    Chartered Bank, being outside the scope of the appeal, ought not to
    be considered at all. He further argued that since most of the
    arguments of Shri Sibal would go to the validity of the resolution plan,
    which Shri Sibal himself has stated that he is not assailing, should
    therefore be rejected on this ground alone. He also argued that it was
    27
    wholly incorrect to say that only INR 39,500 crores would be an
    upfront payment. He read to us certain documents which would show
    that the guaranteed upfront payment INR 42,000 crores which his
    client had committed very much continued and that INR 2,500 crores
    which formed part of this figure was allowed by the Committee of
    Creditors while negotiating with his client for very good reason.
  17. Shri Neeraj Kishan Kaul, learned senior counsel also appearing
    on behalf of ArcelorMittal, stressed the fact that the importance of the
    insolvency resolution process is that not only is the corporate debtor
    to be put back on its feet, but that the resolution applicant whose plan
    is accepted must be able to start on a fresh slate. This being the
    case, obviously Shri Rohatgi’s argument, that the personal
    guarantees of the erstwhile promoters do not stand extinguished and
    that, at the very least, the right of subrogation cannot be taken away,
    would boomerang upon the successful resolution applicant if such
    right of subrogation were to be allowed to continue. Shri Salman
    Khurshid and Shri P. Tripathi, learned senior advocates appearing on
    behalf of Deutsche Bank, stressed that it was important to recognise
    separate classes of creditors and reiterated the arguments made on
    behalf of a number of their forbears as to how it is important to make
    a sub-classification among financial creditors, as also among
    28
    operational creditors, so that there may be real equality, that is,
    equality among equals. Shri Vikas Mehta, learned advocate
    appearing on behalf of GAIL, adverted to paragraph 84 of the
    impugned NCLAT judgment and argued that the facts qua his client
    were wrongly stated inasmuch as the admitted claim figures are
    wrongly stated.
  18. Mrs. Madhavi Divan, learned Additional Solicitor General of
    India, replied to the arguments of Standard Chartered Bank and the
    operational creditors as to the constitutional invalidity of Sections 4
    and 6 of the Amending Act, 2019. She argued that the amendments
    further the objects sought to be achieved by the Code, which is
    maximisation of value of the assets of the corporate debtor in a timebound frame. She pithily stated that the value of assets and the
    passage of time within which insolvency resolution takes place are in
    inverse proportion as the passage of time erodes the value of these
    assets. She pointed out the previous experiments that had failed and
    adverted to certain judgments to show that the failure of previous acts
    such as The Sick Industrial Companies (Special Provisions) Act, 1985
    (hereinafter referred to as “SICA”) and the Recovery of Debts Due to
    Banks and Financial Institutions Act, 1993 (hereinafter referred to as
    “Recovery of Debts Act”) were due to enormous delays in disposal of
    29
    cases. It is this loophole that was sought to be plugged in accordance
    with the original conception for the framework of the Insolvency Code
    that is to be found in the BLRC Report of 2015. She also referred to
    Regulation 39-C of the 2016 Regulations and 32(e) and (f) of the
    Insolvency and Bankruptcy Board of India (Liquidation Process)
    Regulations, 2016 (hereinafter referred to as “Liquidation Process
    Regulations”) together with Regulation 32-A(4) of Liquidation Process
    Regulations, to state that a longer period than was originally given by
    Section 12 of the Code is now given so that, taking into account court
    proceedings, there must now be an outer limit within which either
    resolution takes place or the company goes into liquidation. The
    Regulations pointed out also show that even if the corporate debtor
    goes into liquidation, 90 days is given to sell the undertaking of the
    corporate debtor as a going concern so that 90 days over and above
    330 days are also available to dispose of the corporate debtor as a
    going concern. So far as the challenge to Section 6 of the Amending
    Act of 2019 is concerned, she argued that there is a symbiotic
    relationship between a resolution applicant and the Committee of
    Creditors, who alone are to take a commercial decision by the
    requisite majority whether or not to put the corporate debtor back on
    its feet. The reason for Explanation 1 to Section 30(2)(b) is that, what
    is fair and equitable must be determined within the framework of the
    30
    Code, which is the commercial wisdom of the Committee of Creditors,
    subject to certain minimum guidelines to be observed. Thus,
    operational creditors who were originally to be paid only a minimum
    calculated on the basis of what they would be paid in the event of
    liquidation of a corporate debtor, are now to be paid the higher of two
    amounts, thereby raising the threshold of what is to be paid by a
    resolution applicant by way of a minimum to operational creditors,
    being enhanced under the amended provision. Further, even
    dissentient financial creditors are now to be paid a minimum
    guaranteed amount for the first time, as 66% of the financial creditors
    may give a certain class of financial creditors ‘nil’ recovery, in which
    case this provision now comes to their rescue stating that they shall
    not be given anything less than the amount to be paid to such
    creditors in accordance with Section 53(1) of the Code. She also
    argued that it is important to realise that the mention made of Section
    53 in Section 6 of the Amending Act of 2019 is not in order that the
    priorities as to liquidation be apportioned among creditors, but only in
    order that a minimum amount be calculated so as to see that
    operational creditors and dissentient financial creditors get something
    more than what they would have got pre-amendment. So far as the
    Explanation 2 of the substituted Section 30(2)(b) is concerned, she
    relied upon this Court’s judgment in ArcelorMittal India (supra) and
    31
    Swiss Ribbons (supra), for the proposition that there is no vested
    right in a resolution applicant to have its plan accepted. This being
    the case, and an appeal being a continuation of the proceedings,
    there is nothing wrong with applying the amended law in the three
    cases that have been mentioned by Explanation 2. So far as the
    addition to Section 30(4) by the Amending Act of 2019 is concerned,
    the idea was to get over the judgment of the Appellate Tribunal in this
    very case stating that sub-classification among different classes of
    creditors may be done by the Committee of Creditors also on the
    basis of the value of the security interest of a secured creditor. She
    also read in copious detail, the Rajya Sabha Debate held on
    29.07.2019 in which the Hon’ble Minister piloted this amendment.
    According to her, the Federation of Indian Chambers of Commerce
    and Industry (hereinafter referred to as “FICCI”) gave a
    representation dated 17.07.2019 to the Secretary, Ministry of
    Corporate Affairs pointing out the flawed judgment of the NCLAT in
    this very case and asking the Government to swiftly amend the Code
    so as to reinstate the law as it originally stood, to which the
    Government and Parliament responded by enacting the Amending
    Act of 2019.
    32
  19. Shri Tushar Mehta, learned Solicitor General of India, has
    supplemented the submissions of the learned Additional Solicitor
    General by written arguments. He has argued that it is well settled
    that the legislature can always take away the basis of a judicial
    decision without directly interfering with the judgment of the Court,
    and has cited several decisions to buttress this point. He also argued
    that Shri Sibal’s assault on the constitutional validity of Sections 4
    and 6 of the Amending Act of 2019 on the ground that the
    Amendment was tailor-made to do away with the judgment in this
    very matter, so that his client may walk away without anything, is
    answered by the well settled principle that an Act of the legislature
    cannot be attacked on the ground of improper or bad motive, and
    cited certain judgments of this Court in support of the same.
    Role of the resolution professional
  20. The role of the resolution professional in the revival of the
    corporate debtor is stated in detail in several Sections of the Code
    read with the 2016 Regulations.
  21. The ball starts rolling with the Adjudicating Authority, after
    admitting an application under either Sections 7, 9 or 10, ordering
    that a public announcement of the initiation of the CIRP together with
    calling for the submission of claims under Section 15 shall be made –
    33
    see Section 13(1)(b) of the Code. For this purpose, the Adjudicating
    Authority appoints an interim resolution professional in the manner
    laid down in Section 16 – see Section 13(1)(c) of the Code. In the
    public announcement of the CIRP, under Section 15(1), information
    as to the last date for submission of claims, as may be specified, is to
    be given; details of the interim resolution professional, who shall be
    vested with the management of the corporate debtor and be
    responsible for receiving claims, shall also be given, and the date on
    which the CIRP shall close is also to be given – see Section 15(1)(c),
    (d) and (f) of the Code. Under Section 17 of the Code, the
    management of the affairs of the corporate debtor shall vest in the
    interim resolution professional, the Board of Directors of the corporate
    debtor standing suspended by law. Among the important duties of the
    interim resolution professional is the receiving and collating of all
    claims submitted by creditors and the constitution of a Committee of
    Creditors – see Section 18(1)(b) and (c) of the Code. Under Section
    20 of the Code, the interim resolution professional is to make every
    endeavour to protect and preserve the value of the property of the
    corporate debtor and manage the operations of the corporate debtor
    as a going concern.
    34
  22. At the first meeting of the Committee of Creditors, which shall
    be held within 7 days of its constitution, the Committee, by majority
    vote of not less than 66% of the voting share of financial creditors,
    must immediately resolve to appoint the interim resolution
    professional as a resolution professional, or to replace the interim
    resolution professional by another resolution professional – see
    Section 22(1) and (2) of the Code. Under Section 23(1), the
    resolution professional shall conduct the entire CIRP and manage the
    operations of the corporate debtor during the same. Importantly, all
    meetings of the Committee of Creditors are to be conducted by the
    resolution professional, who shall give notice of such meetings to the
    members of the Committee of Creditors, the members of the
    suspended board of directors, and operational creditors, provided the
    amount of their aggregate dues is not less than 10% of the entire
    debt owed. Like the duties of the interim resolution professional under
    Section 18 of the Code, it shall be the duty of the resolution
    professional to preserve and protect assets of the corporate debtor
    including the continued business operations of the corporate debtor –
    see Section 25(1) of the Code. For this purpose, he is to maintain an
    updated list of claims; convene and attend all meetings of the
    Committee of Creditors; prepare the information memorandum in
    accordance with Section 29 of the Code; invite prospective resolution
    35
    applicants; and present all resolution plans at the meetings of the
    Committee of Creditors – see Section 25(2)(e) to (i) of the Code.
    Under Section 29(1) of the Code, the resolution professional shall
    prepare an information memorandum containing all relevant
    information, as may be specified, so that a resolution plan may then
    be formulated by a prospective resolution applicant. Under Section 30
    of the Code, the resolution applicant must then submit a resolution
    plan to the resolution professional, prepared on the basis of the
    information memorandum. After this, the resolution professional must
    present to the Committee of Creditors, for its approval, such
    resolution plans which conform to the conditions referred to in Section
    30(2) of the Code – see Section 30(3) of the Code. If the resolution
    plan is approved by the requisite majority of the Committee of
    Creditors, it is then the duty of the resolution professional to submit
    the resolution plan as approved by the Committee of Creditors to the
    Adjudicating Authority – see Section 30(6) of the Code.
  23. The aforesaid provisions of the Code are then fleshed out in the
    2016 Regulations. Under Chapter IV of the aforesaid Regulations,
    claims by operational creditors, financial creditors, other creditors,
    workmen and employees are to be submitted to the resolution
    professional along with proofs thereof – see Regulations 7 to 12.
    36
    Thereafter, under Regulation 13, the resolution professional shall
    verify each claim as on the insolvency commencement date, and
    thereupon maintain a list of creditors containing the names of
    creditors along with the amounts claimed by them, the amounts
    admitted by him, and the security interest, if any, in respect of such
    claims, and constantly update the aforesaid list – see Regulation
    13(1).
  24. Chapter X of the Regulations then deals with resolution plans
    that are submitted. Under Regulation 35, “fair value” as defined by
    Regulation 2(hb)1
    and “liquidation value” as defined by Regulation
    2(k)2
    shall be determined by two registered valuers appointed under
    Regulation 27, which shall be handed over the resolution
    professional.
  25. After receipt of the resolution plans in accordance with the
    Code and the Regulations, the resolution professional shall then
    provide the fair value and liquidation value to every member of the
    Committee of Creditors – see Regulation 35(2). Regulation 36 is
    1 Under Regulation 2(hb), Insolvency and Bankruptcy Board of India (Insolvency Resolution
    Process for Corporate Persons) Regulations, 2016 – “fair value” means the estimated
    realizable value of the assets of the corporate debtor, if they were to be exchanged on the
    insolvency commencement date between a willing buyer and a willing seller in an arm’s
    length transaction, after proper marketing and where the parties had acted knowledgeably,
    prudently and without compulsion
    2 Id. Under Regulation 2(k) – “liquidation value” means the estimated realizable value of the
    assets of the corporate debtor, if the corporate debtor were to be liquidated on the
    insolvency commencement date.
    37
    important as it forms the basis for the submission of a resolution plan.
    The information memorandum, spoken of by this regulation, must
    contain the following:
    “(a) assets and liabilities with such description, as on the
    insolvency commencement date, as are generally
    necessary for ascertaining their values.
    Explanation: “Description” includes the details such as date
    of acquisition, cost of acquisition, remaining useful life,
    identification number, depreciation charged, book value,
    and any other relevant details.
    (b) the latest annual financial statements;
    (c) audited financial statements of the corporate debtor for
    the last two financial years and provisional financial
    statements for the current financial year made up to a date
    not earlier than fourteen days from the date of the
    application;
    (d) a list of creditors containing the names of creditors, the
    amounts claimed by them, the amount of their claims
    admitted and the security interest, if any, in respect of such
    claims;
    (e) particulars of a debt due from or to the corporate debtor
    with respect to related parties;
    (f) details of guarantees that have been given in relation to
    the debts of the corporate debtor by other persons,
    specifying which of the guarantors is a related party;
    (g) the names and addresses of the members or partners
    holding at least one per cent stake in the corporate debtor
    along with the size of stake;
    (h) details of all material litigation and an ongoing
    investigation or proceeding initiated by Government and
    statutory authorities;
    (i) the number of workers and employees and liabilities of
    the corporate debtor towards them;
    (j) ***
    38
    (k) ***
    (l) other information, which the resolution professional
    deems relevant to the committee.”
  26. Under Regulation 36-A, the resolution professional shall then
    publish brief particulars of the invitation for expression of interest in
    Form G of the Schedule. This document must also, inter alia, provide
    for such basic information about the corporate debtor as may be
    required by a prospective resolution applicant for its expression of
    interest – see Regulation 36-A (4)(c). The resolution professional,
    once he receives a proposed resolution plan, must then conduct due
    diligence based on the material on record, in order that the
    prospective resolution applicant complies with Section 25(2)(h) of the
    Code (which, inter alia, requires prospective resolution applicants to
    fulfil such criteria as may be laid down, having regard to the
    complexity and scale of operations of the business of the corporate
    debtor); the provisions of Section 29-A; and other requirements as
    may be specified in the invitation for expression of interest – see
    Regulation 36-A(8). Once this is done, the resolution professional
    shall issue a provisional list of eligible prospective resolution
    applicants to the Committee of Creditors, and after considering any
    objection to their inclusion or exclusion, shall then issue the final list
    of prospective resolution applicants to the Committee of Creditors –
    see Regulation 36-A (10) to (12). Under Regulation 36-B, the
    39
    resolution professional shall issue the information memorandum,
    evaluation matrix, as defined by Regulation 2(h)(a)3
    , and a request for
    resolution plan within the time stated. Importantly, the resolution
    professional shall endeavour to submit the resolution plan approved
    by the Committee of Creditors to the Adjudicating Authority, at least
    15 days before the maximum period for completion of CIRP, along
    with a compliance certificate in Form H of the Schedule.
  27. The detailed provisions that have been stated hereinabove
    make it clear that the resolution professional is a person who is not
    only to manage the affairs of the corporate debtor as a going concern
    from the stage of admission of an application under Sections 7, 9 or
    10 of the Code till a resolution plan is approved by the Adjudicating
    Authority, but is also a key person who is to appoint and convene
    meetings of the Committee of Creditors, so that they may decide
    upon resolution plans that are submitted in accordance with the
    detailed information given to resolution applicants by the resolution
    professional. Another very important function of the resolution
    professional is to collect, collate and finally admit claims of all
    creditors, which must then be examined for payment, in full or in part
    or not at all, by the resolution applicant and be finally negotiated and
    3 Under Regulation 2(ha), Insolvency and Bankruptcy Board of India (Insolvency Resolution
    Process for Corporate Persons) Regulations, 2016 – (ha) – “evaluation matrix” means such
    parameters to be applied and the manner of applying such parameters, as approved by the
    committee, for consideration of resolution plans for its approval
    40
    decided by the Committee of Creditors. In fact, in ArcelorMital India
    (supra), this Court referred to the role of the resolution professional
    under the Code and the aforesaid Regulations, making it clear that
    the said role is not adjudicatory but administrative, in the following
    terms:
    “80. However, it must not be forgotten that a Resolution
    Professional is only to “examine” and “confirm” that each
    resolution plan conforms to what is provided by Section
    30(2). Under Section 25(2)(i), the Resolution Professional
    shall undertake to present all resolution plans at the
    meetings of the Committee of Creditors. This is followed by
    Section 30(3), which states that 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). This provision has
    to be read in conjunction with Section 25(2)(i), and with the
    second proviso to Section 30(4), which provides that where
    a resolution applicant is found to be ineligible under
    Section 29-A(c), the resolution applicant shall be allowed
    by the Committee of Creditors such period, not exceeding
    30 days, to make payment of overdue amounts in
    accordance with the proviso to Section 29-A(c). A
    conspectus of all these provisions would show that the
    Resolution Professional is required to examine that the
    resolution plan submitted by various applicants is complete
    in all respects, before submitting it to the Committee of
    Creditors. The Resolution Professional is not required to
    take any decision, but merely to ensure that the resolution
    plans submitted are complete in all respects before they
    are placed before the Committee of Creditors, who may or
    may not approve it. The fact that the Resolution
    Professional is also to confirm that a resolution plan does
    not contravene any of the provisions of law for the time
    being in force, including Section 29-A of the Code, only
    means that his prima facie opinion is to be given to the
    Committee of Creditors that a law has or has not been
    contravened. Section 30(2)(e) does not empower the
    Resolution Professional to “decide” whether the resolution
    41
    plan does or does not contravene the provisions of law.
    Regulation 36-A of the CIRP Regulations specifically
    provides as follows:
    “36-A. (8) The resolution professional shall conduct due
    diligence based on the material on record in order to satisfy
    that the prospective resolution applicant complies with—
    (a) the provisions of clause (h) of sub-section (2) of Section
    25;
    (b) the applicable provisions of Section 29-A, and
    (c) other requirements, as specified in the invitation for
    expression of interest.
    (9) The resolution professional may seek any clarification
    or additional information or document from the prospective
    resolution applicant for conducting due diligence under
    sub-regulation (8).
    (10) The resolution professional shall issue a provisional
    list of eligible prospective resolution applicants within ten
    days of the last date for submission of expression of
    interest to the committee and to all prospective resolution
    applicants who submitted the expression of interest.
    (11) Any objection to inclusion or exclusion of a prospective
    resolution applicant in the provisional list referred to in subregulation (10) may be made with supporting documents
    within five days from the date of issue of the provisional list.
    (12) On considering the objections received under subregulation (11), the resolution professional shall issue the
    final list of prospective resolution applicants within ten days
    of the last date for receipt of objections, to the committee.”
  28. Thus, the importance of the Resolution Professional is
    to ensure that a resolution plan is complete in all respects,
    and to conduct a due diligence in order to report to the
    Committee of Creditors whether or not it is in order. Even
    though it is not necessary for the Resolution Professional
    to give reasons while submitting a resolution plan to the
    Committee of Creditors, it would be in the fitness of things
    if he appends the due diligence report carried out by him
    with respect to each of the resolution plans under
    consideration, and to state briefly as to why it does or does
    not conform to the law.”
    42
    Role of the prospective resolution applicant
  29. The UNCITRAL Legislative Guide discusses what ought to be the
    contents of a resolution plan in an Insolvency Code in the following
    terms:
    “4. The plan
    xxx xxx xxx
  30. The question of what is to be included in the plan is
    closely related to the procedure for approval of the plan,
    that is, which creditors are required to approve the plan
    and the level of support required for approval, the effect of
    the plan once approved, that is, will it bind dissenting
    creditors and secured creditors and who will be responsible
    for implementation of the plan and for ongoing
    management of the debtor, and whether or not there is a
    requirement for court confirmation. Many insolvency laws
    include provisions addressing the content of the
    reorganization plan. Some laws address the content of the
    plan by reference to general criteria, such as requirements
    that the reorganization plan should adequately and clearly
    disclose to all parties information regarding both the
    financial condition of the debtor and the transformation of
    legal rights that is being proposed in the plan, or by
    reference to minimal requirements, such as that the plan
    must make provision for payment of certain preferred
    claims. It should be noted that a plan need not modify or
    otherwise affect the rights of every class of creditor.
  31. Other laws set out more specific requirements as to
    what information is required in relation to the debtor’s
    financial situation and the proposals that can be included in
    a plan. Information on the financial situation of the debtor
    could include asset and liability statements; cash flow
    statements; and information relating to the causes or
    reasons for the financial situation of the debtor. Information
    relating to what is proposed by the plan could include,
    depending upon the objective of the plan and the
    circumstances of a particular debtor, details of classes of
    43
    claims; claims modified or affected under the plan and the
    treatment to be accorded to each class under the plan; the
    continuation or rejection of contracts that are not fully
    executed; the treatment of unexpired leases; measures
    and arrangements for dealing with the debtor’s assets (e.g.
    transfer, liquidation or retention); the sale or other
    treatment of encumbered assets; the disclosure and
    acceptance procedure; the rights of disputed claims to take
    part in the voting and provisions for disputed claims to be
    resolved; arrangements concerning personnel of the
    debtor; remuneration of management of the debtor;
    financing implementation of the plan; extension of the
    maturity date or a change in the interest rate or other term
    of outstanding security interests; the role to be played by
    the debtor in implementation of the plan and identification
    of those to be responsible for future management of the
    debtor’s business; the settlement of claims and how the
    amount that creditors will receive will be more than they
    would have received in liquidation; payment of interest on
    claims; distribution of all or any part of the assets of the
    estate among those having an interest in those assets;
    possible changes to the instrument or organic document
    constituting the debtor (e.g. changes to by-laws or articles
    of association) or the capital structure of the debtor or
    merger or consolidation of the debtor with one or more
    persons; the basis upon which the business will be able to
    keep trading and can be successfully reorganized;
    supervision of the implementation of the plan; and the
    period of implementation of the plan, including in some
    cases a statutory maximum period.
  32. Rather than specifying a wide range of detailed
    information to be included in a plan, it may be desirable for
    the insolvency law to identify the minimum content of a
    plan, focusing upon the key objectives of the plan and
    procedures for implementation. For example, the
    insolvency law may require the plan to detail the classes of
    creditors and the treatment each is to be accorded in the
    plan; the terms and conditions of the plan (such as
    treatment of contracts and the ongoing role of the debtor);
    and what is required for implementation of the plan (such
    44
    as sale of assets or parts of the business, extension of
    maturity dates, changes to capital structure of the business
    and supervision of implementation).”
  33. Under the Code, the prospective resolution applicant has a right
    to receive complete information as to the corporate debtor, debts
    owed by it, and its activities as a going concern, prior to the
    admission of an application under section 7, 9 or 10 of the Code. For
    this purpose, it has a right to receive information contained in the
    information memorandum as well as the evaluation matrix mentioned
    in Regulation 36-B. Once it evinces an expression of interest, what
    follows is laid down in Regulation 36-A(7) which reads as follows:
    “36-A. Invitation for Expression of Interest
    xxx xxx xxx
    (7) An expression of interest shall be unconditional and be
    accompanied by-
    (a) an undertaking by the prospective resolution applicant
    that it meets the criteria specified by the committee under
    clause (h) of sub-section (2) of section 25;
    (b) relevant records in evidence of meeting the criteria
    under clause (a);
    (c) an undertaking by the prospective resolution applicant
    that it does not suffer from any ineligibility under section
    29A to the extent applicable;
    (d) relevant information and records to enable an
    assessment of ineligibility under clause (c);
    (e) an undertaking by the prospective resolution applicant
    that it shall intimate the resolution professional forthwith if it
    becomes ineligible at any time during the corporate
    insolvency resolution process;
    45
    (f) an undertaking by the prospective resolution applicant
    that every information and records provided in expression
    of interest is true and correct and discovery of any false
    information or record at any time will render the applicant
    ineligible to submit resolution plan, forfeit any refundable
    deposit, and attract penal action under the Code; and
    (g) an undertaking by the prospective resolution applicant
    to the effect that it shall maintain confidentiality of the
    information and shall not use such information to cause an
    undue gain or undue loss to itself or any other person and
    comply with the requirements under sub-section (2) of
    section 29”
    Thereafter, the resolution plan submitted by the prospective
    resolution applicant must provide for measures as may be necessary
    for the insolvency resolution of the corporate debtor for maximisation
    of the value of its assets, which may include transfer or sale of assets
    or part thereof, whether subject to security interests or not. The plan
    may provide for either satisfaction or modification of any security
    interest of a secured creditor and may also provide for reduction in
    the amount payable to different classes of creditors – see Regulation
    37.
  34. Accordingly, Regulation 38 then deals with the mandatory
    contents of a resolution plan, making it clear that such plan must
    contain a provision that the amount due to operational creditors shall
    be given priority in payment over financial creditors – see Regulation
    38(1). Such plan must also include provisions as to how to deal with
    the interests of all stakeholders including financial creditors and
    46
    operational creditors of the corporate debtor – Regulation 38 (1A). It
    must then provide for the term of the plan, management and control
    of the business of the corporate debtor during such term, and its
    implementation. It must also demonstrate that it is feasible and viable,
    and that the resolution applicant has the capability to implement the
    said plan. Regulation 38, being important, is set out hereinbelow:
    “38. Mandatory contents of the resolution plan
    (1) The amount due to the operational creditors under a
    resolution plan shall be given priority in payment over
    financial creditors.
    (1A) 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 debtor.
    (2) A resolution plan shall provide:
    (a) the term of the plan and its implementation schedule;
    (b) the management and control of the business of the
    corporate debtor during its term; and
    (c) adequate means for supervising its implementation.
    (3) A resolution plan shall demonstrate that –
    (a) it addresses the cause of default;
    (b) it is feasible and viable;
    (c) it has provisions for its effective implementation;
    (d) it has provisions for approvals required and the timeline
    for the same; and
    (e) the resolution applicant has the capability to implement
    the resolution plan.”
    Role of the committee of creditors in the corporate resolution
    process
    47
  35. Since it is the commercial wisdom of the Committee of
    Creditors that is to decide on whether or not to rehabilitate the
    corporate debtor by means of acceptance of a particular resolution
    plan, the provisions of the Code and the Regulations outline in detail
    the importance of setting up of such Committee, and leaving
    decisions to be made by the requisite majority of the members of the
    aforesaid Committee in its discretion. Thus, Section 21(2) of the Code
    mandates that the Committee of Creditors shall comprise all financial
    creditors of the corporate debtor. “Financial creditors” are defined in
    Section 5(7) of the Code as meaning persons to whom a financial
    debt is owed and includes a person to whom such debt has been
    legally assigned or transferred. “Financial debt” is then defined in
    Section 5(8) of the Code as meaning a debt along with interest, if any,
    which is disbursed against the consideration for the time value of
    money. “Secured creditor” is separately defined in Section 3(30) of
    the Code as meaning a creditor in favour of whom a security interest
    is created and “security interest” is defined by Section 3(31) as
    follows:
    “3. Definitions. – In this Code, unless the context
    otherwise requires. –
    xxx xxx xxx
    (31) “security interest” means right, title or interest or a
    claim to property, created in favour of, or provided for a
    secured creditor by a transaction which secures payment
    48
    or performance of an obligation and includes mortgage,
    charge, hypothecation, assignment and encumbrance or
    any other agreement or arrangement securing payment or
    performance of any obligation of any person:
    Provided that security interest shall not include a
    performance guarantee;”
  36. It is settled by several judgments of this Court that in order to
    trigger application of the Code, a neat division has been made
    between financial creditors and operational creditors. It has also been
    noticed in some of our judgments that most financial creditors are
    secured creditors and most operational creditors are unsecured
    creditors. The rationale for only financial creditors handling the affairs
    of the corporate debtor and resolving them is for reasons that have
    been deliberated upon by the BLRC Report of 2015, which formed
    the basis for the enactment of the Insolvency Code.
  37. At this juncture, it is important to set out the relevant extracts
    from the aforementioned report:
    “2. Executive Summary
    xxx xxx xxx
    The key economic question in the bankruptcy process
    xxx xxx xxx
    The Committee believes that there is only one correct
    forum for evaluating such possibilities, and making a
    decision: a creditors committee, where all financial
    creditors have votes in proportion to the magnitude of debt
    that they hold. In the past, laws in India have brought arms
    of the government (legislature, executive or judiciary) into
    this question. This has been strictly avoided by the
    49
    Committee. The appropriate disposition of a defaulting firm
    is a business decision, and only the creditors should make
    it.
    xxx xxx xxx
  38. Process for legal entities
    xxx xxx xxx
    Business decisions by a creditor committee
    All decisions on matters of business will be taken by a
    committee of the financial creditors. This includes
    evaluating proposals to keep the entity as a going concern,
    including decisions about the sale of business or units,
    retiring or restructuring debt. The debtor will be a nonvoting member on the creditors committee, and will be
    invited to all meetings. The voting of the creditors
    committee will be by majority, where the majority requires
    more than 75 percent of the vote by weight.
    xxx xxx xxx
    No prescriptions on solutions to resolve the
    insolvency
    The choice of the solution to keep the entity as a going
    concern will be voted on by the creditors committee. There
    are no constraints on the proposals that the Resolution
    Professional can present to the creditors committee. Other
    than the majority vote of the creditors committee, the
    Resolution Professional needs to confirm to the Adjudicator
    that the final solution complies with three additional
    requirements. The first is that the solution must explicitly
    require the repayment of any interim finance and costs of
    the insolvency resolution process will be paid in priority to
    other payments. Secondly, the plan must explicitly include
    payment to all creditors not on the creditors committee,
    within a reasonable period after the solution is
    implemented. Lastly, the plan should comply with existing
    laws governing the actions of the entity while implementing
    the solutions.
    xxx xxx xxx
    5.3.1 Steps at the start of the IRP
    50
  39. Creation of the creditors committee
    The creditors committee will have the power to decide the
    final solution by majority vote in the negotiations. The
    majority vote requires more than or equal to 75 percent of
    the creditors committee by weight of the total financial
    liabilities. The majority vote will also involve a cram down
    option on any dissenting creditors once the majority vote is
    obtained…The Committee deliberated on who should be
    on the creditors committee, given the power of the creditors
    committee to ultimately keep the entity as a going concern
    or liquidate it. The Committee reasoned that members of
    the creditors committee have to be creditors both with the
    capability to assess viability, as well as to be willing to
    modify terms of existing liabilities in negotiations. Typically,
    operational creditors are neither able to decide on matters
    regarding the insolvency of the entity, nor willing to take the
    risk of postponing payments for better future prospects for
    the entity. The Committee concluded that, for the process
    to be rapid and efficient, the Code will provide that the
    creditors committee should be restricted to only the
    financial creditors.
    5.3.3 Obtaining the resolution to insolvency in the IRP
    The Committee is of the opinion that there should be
    freedom permitted to the overall market to propose
    solutions on keeping the entity as a going concern. Since
    the manner and the type of possible solutions are specific
    to the time and environment in which the insolvency
    becomes visible, it is expected to evolve over time, and
    with the development of the market. The Code will be open
    to all forms of solutions for keeping the entity going without
    prejudice, within the rest of the constraints of the IRP.
    Therefore, how the insolvency is to be resolved will not be
    prescribed in the Code. There will be no restriction in the
    Code on possible ways in which the business model of the
    entity, or its financial model, or both, can be changed so as
    to keep the entity as a going concern. The Code will not
    state that the entity is to be revived, or the debt is to be
    restructured, or the entity is to be liquidated. This decision
    will come from the deliberations of the creditors committee
    in response to the solutions proposed by the market.”
    (emphasis supplied)
    51
  40. The aforesaid extracts follow what is stated in the UNCITRAL
    Legislative Guide which prescribes as follows:
    “2. Nature or form of a plan
  41. The purpose of reorganization is to maximize the
    possible eventual return to creditors, providing a better
    result than if the debtor were to be liquidated and to
    preserve viable businesses as a means of preserving jobs
    for employees and trade for suppliers. With different
    constituents involved in reorganization proceedings, each
    may have different views of how the various objectives can
    best be achieved. Some creditors, such as major
    customers or suppliers, may prefer continued business with
    the debtor to rapid repayment of their debt. Some creditors
    may favour taking an equity stake in the business, while
    others will not. Typically, therefore, there is a range of
    options from which to select in a given case. If an
    insolvency law adopts a prescriptive approach to the
    range of options available or to the choice to be made
    in a particular case, it is likely to be too constrictive. It
    is desirable that the law not restrict reorganization plans to
    those designed only to fully rehabilitate the debtor; prohibit
    debt from being written off; restrict the amount that must
    eventually be paid to creditors by specifying a minimum
    percentage; or prohibit exchange of debt for equity. A nonintrusive approach that does not prescribe such
    limitations is likely to provide sufficient flexibility to
    allow the most suitable of a range of possibilities to be
    chosen for a particular debtor.
    xxx xxx xxx
  42. Rather than specifying a wide range of detailed
    information to be included in a plan, it may be
    desirable for the insolvency law to identify the
    minimum content of a plan, focusing upon the key
    objectives of the plan and procedures for
    implementation. For example, the insolvency law may
    require the plan to detail the classes of creditors and the
    treatment each is to be accorded in the plan; the terms and
    conditions of the plan (such as treatment of contracts and
    the ongoing role of the debtor); and what is required for
    52
    implementation of the plan (such as sale of assets or parts
    of the business, extension of maturity dates, changes to
    capital structure of the business and supervision of
    implementation).”
    (emphasis supplied)
  43. Section 24 of the Code deals with meetings of the Committee of
    Creditors. Though voting on the approval of a resolution plan is only
    with the financial creditors who form the Committee of Creditors, yet
    the resolution professional is to conduct the aforesaid meeting at
    which members of the suspended board of directors may be present,
    together with one representative of operational creditors, provided
    that the aggregate dues owed to all operational creditors is not less
    than 10% of the entire debt owed – see Sections 24(2),(3) and (4) of
    the Code. Voting shall be in accordance with the voting share
    assigned to each financial creditor, which is based on the financial
    debts owed to such creditors – see Section 24(6) of the Code.
  44. Even though it is the resolution professional who is to run the
    business of the corporate debtor as a going concern during the
    intermediate period, yet, such resolution professional cannot take
    certain decisions relating to management of the corporate debtor
    without the prior approval of at least 66% of the votes of the
    Committee of Creditors. Section 28 of the Code is important and is
    set out hereinbelow:
    53
    “28. Approval of committee of creditors for certain
    actions
    (1) Notwithstanding anything contained in any other law for
    the time being in force, the resolution professional, during
    the corporate insolvency resolution process, shall not take
    any of the following actions without the prior approval of the
    committee of creditors namely:—
    (a) raise any interim finance in excess of the amount as
    may be decided by the committee of creditors in their
    meeting;
    (b) create any security interest over the assets of the
    corporate debtor;
    (c) change the capital structure of the corporate debtor,
    including by way of issuance of additional securities,
    creating a new class of securities or buying back or
    redemption of issued securities in case the corporate
    debtor is a company;
    (d) record any change in the ownership interest of the
    corporate debtor;
    (e) give instructions to financial institutions maintaining
    accounts of the corporate debtor for a debit transaction
    from any such accounts in excess of the amount as may be
    decided by the committee of creditors in their meeting;
    (f) undertake any related party transaction;
    (g) amend any constitutional documents of the corporate
    debtor;
    (h) delegate its authority to any other person;
    (i) dispose of or permit the disposal of shares of any
    shareholder of the corporate debtor or their nominees to
    third parties;
    (j) make any change in the management of the corporate
    debtor or its subsidiary;
    (k) transfer rights or financial debts or operational debts
    under material contracts otherwise than in the ordinary
    course of business;
    54
    (l) make changes in the appointment or terms of contract of
    such personnel as specified by the committee of creditors;
    or
    (m) make changes in the appointment or terms of contract
    of statutory auditors or internal auditors of the corporate
    debtor
    (2) The resolution professional shall convene a meeting of
    the committee of creditors and seek the vote of the
    creditors prior to taking any of the actions under subsection (1).
    (3) No action under sub-section (1) shall be approved by
    the committee of creditors unless approved by a vote of
    sixty-six per cent of the voting shares.
    (4) Where any action under sub-section (1) is taken by the
    resolution professional without seeking the approval of the
    committee of creditors in the manner as required in this
    section, such action shall be void.
    (5) The committee of creditors may report the actions of the
    resolution professional under sub-section (4) to the Board
    for taking necessary actions against him under this Code.”
    Thus, it is clear that since corporate resolution is ultimately in the
    hands of the majority vote of the Committee of Creditors, nothing can
    be done qua the management of the corporate debtor by the
    resolution professional which impacts major decisions to be made in
    the interregnum between the taking over of management of the
    corporate debtor and corporate resolution by the acceptance of a
    resolution plan by the requisite majority of the Committee of
    Creditors. Most importantly, under Section 30(4), the Committee of
    Creditors may approve a resolution plan by a vote of not less than
    66% of the voting share of the financial creditors, after considering its
    55
    feasibility and viability, and various other requirements as may be
    prescribed by the Regulations.
  45. Regulation 18 to 26 of the 2016 Regulations deal with meetings
    to be conducted by the Committee of Creditors. The quorum at the
    meeting is fixed by Regulation 22, and the conduct of the meeting is
    to take place as under Regulation 24. Voting takes place under
    Regulation 25 and 26. Most importantly, Regulation 39(3) states:
    “39. Approval of resolution plan
    xxx xxx xxx
    (3) The committee shall evaluate the resolution plans
    received under sub-regulation (1) strictly as per the
    evaluation matrix to identify the best resolution plan and
    may approve it with such modifications as it deems fit
    Provided that the committee may approve any resolution
    plan with such modifications as it deems fit.”
  46. This Regulation fleshes out Section 30(4) of the Code, making it
    clear that ultimately it is the commercial wisdom of the Committee of
    Creditors which operates to approve what is deemed by a majority of
    such creditors to be the best resolution plan, which is finally accepted
    after negotiation of its terms by such Committee with prospective
    resolution applicants.
  47. In K. Sashidhar (supra), the role of the Committee of Creditors
    in the corporate resolution process was laid down by this Court thus:
    “20. The CoC is constituted as per Section 21 of the I&B
    Code, which consists of financial creditors. The term
    56
    ‘financial creditor’ has been defined in Section 5(7) of the
    I&B Code to mean any person to whom a financial debt is
    owed and includes a person to whom such debt has been
    legally assigned or transferred to. Be it noted that the
    process of insolvency resolution and liquidation concerning
    corporate debtors has been codified in Part II of the I&B
    Code, comprising of seven Chapters. Chapter I predicates
    that Part II shall apply in matters relating to the insolvency
    and liquidation of corporate debtor where the minimum
    amount of default is Rs. 1,00,000/-. Section 5 in Chapter I
    is a dictionary clause specific to Part II of the Code.
    Chapter II deals with the gamut of procedure to be followed
    for the corporate insolvency resolution process. For dealing
    with the issue on hand, the provisions contained in Chapter
    II will be significant. From the scheme of the provisions, it is
    clear that the provisions in Part II of the Code are selfcontained code, providing for the procedure for
    consideration of the resolution plan by the CoC.
  48. The stage at which the dispute concerning the
    respective corporate debtors (KS&PIPL and IIL) had
    reached the adjudicating authority (NCLT) is ascribable to
    Section 30(4) of the I&B Code, which, at the relevant time
    in October 2017, read thus:
    “30(4)- The committee of creditors may approve a
    resolution plan by a vote of not less than seventy five per
    cent of voting share of the financial creditors.”
  49. If the CoC had approved the resolution plan by
    requisite percent of voting share, then as per Section 30(6)
    of the I&B Code, it is imperative for the resolution
    professional to submit the same to the adjudicating
    authority (NCLT). On receipt of such a proposal, the
    adjudicating authority (NCLT) is required to satisfy itself
    that the resolution plan as approved by CoC meets the
    requirements specified in Section 30(2). No more and no
    less. This is explicitly spelt out in Section 31 of the I&B
    Code, which read thus (as in October 2017):
    57
    “31. Approval of resolution plan.-(1) If the Adjudicating
    Authority is satisfied that the resolution plan as approved
    by the committee of creditors under sub-section (4) of
    section 30 meets the requirements as referred to in subsection(2) of section 30, it shall by order approve the
    resolution plan which shall be binding on the corporate
    debtor and its employees, members, creditors, guarantors
    and other stakeholders involved in the resolution plan.
    (2) Where the Adjudicating Authority is satisfied that the
    resolution plan does not confirm to the requirements
    referred to in sub-section (1), it may, by an order, reject the
    resolution plan.
    (3) After the order of approval under sub-section (1),-
    (a) the moratorium order passed by the Adjudicating
    Authority under section 14 shall cease to have effect; and
    (b) the resolution professional shall forward all records
    relating to the conduct of the corporate insolvency
    resolution process and the resolution plan to the Board to
    be recorded on its database.”
    xxx xxx xxx
  50. As aforesaid, upon receipt of a “rejected” resolution
    plan the adjudicating authority (NCLT) is not expected to do
    anything more; but is obligated to initiate liquidation
    process under Section 33(1) of the I&B Code. The
    legislature has not endowed the adjudicating authority
    (NCLT) with the jurisdiction or authority to analyse or
    evaluate the commercial decision of the CoC muchless to
    enquire into the justness of the rejection of the resolution
    plan by the dissenting financial creditors. From the
    legislative history and the background in which the I&B
    Code has been enacted, it is noticed that a completely new
    approach has been adopted for speeding up the recovery
    of the debt due from the defaulting companies. In the new
    approach, there is a calm period followed by a swift
    resolution process to be completed within 270 days (outer
    limit) failing which, initiation of liquidation process has been
    made inevitable and mandatory. In the earlier regime, the
    58
    corporate debtor could indefinitely continue to enjoy the
    protection given under Section 22 of Sick Industrial
    Companies Act, 1985 or under other such enactments
    which has now been forsaken. Besides, the commercial
    wisdom of the CoC has been given paramount status
    without any judicial intervention, for ensuring completion of
    the stated processes within the timelines prescribed by the
    I&B Code. There is an intrinsic assumption that financial
    creditors are fully informed about the viability of the
    corporate debtor and feasibility of the proposed resolution
    plan. They act on the basis of thorough examination of the
    proposed resolution plan and assessment made by their
    team of experts. The opinion on the subject matter
    expressed by them after due deliberations in the CoC
    meetings through voting, as per voting shares, is a
    collective business decision. The legislature, consciously,
    has not provided any ground to challenge the “commercial
    wisdom” of the individual financial creditors or their
    collective decision before the adjudicating authority. That is
    made nonjusticiable.”
  51. The importance of the majority decision of the Committee of
    Creditors is then stated in Section 31(1) of the Code which is set out
    as follows:
    “31. Approval of resolution plan
    (1) If the Adjudicating Authority is satisfied that the
    resolution plan as approved by the committee of
    creditors under sub-section (4) of section 30 meets the
    requirements as referred to in sub-section (2) of section
    30, it shall by order approve the resolution plan which
    shall be binding on the corporate debtor and its
    employees, members, creditors, guarantors and other
    stakeholders involved in the resolution plan.”
    Thus, what is left to the majority decision of the Committee of
    Creditors is the “feasibility and viability” of a resolution plan, which
    59
    obviously takes into account all aspects of the plan, including the
    manner of distribution of funds among the various classes of
    creditors. As an example, take the case of a resolution plan which
    does not provide for payment of electricity dues. It is certainly open to
    the Committee of Creditors to suggest a modification to the
    prospective resolution applicant to the effect that such dues ought to
    be paid in full, so that the carrying on of the business of the corporate
    debtor does not become impossible for want of a most basic and
    essential element for the carrying on of such business, namely,
    electricity. This may, in turn, be accepted by the resolution applicant
    with a consequent modification as to distribution of funds, payment
    being provided to a certain type of operational creditor, namely, the
    electricity distribution company, out of upfront payment offered by the
    proposed resolution applicant which may also result in a consequent
    reduction of amounts payable to other financial and operational
    creditors. What is important is that it is the commercial wisdom of this
    majority of creditors which is to determine, through negotiation with
    the prospective resolution applicant, as to how and in what manner
    the corporate resolution process is to take place.
    Jurisdiction of the Adjudicating Authority and the Appellate
    Tribunal
    60
  52. As has already been seen hereinabove, it is the Adjudicating
    Authority which first admits an application by a financial or operational
    creditor, or by the corporate debtor itself under Section 7, 9 and 10 of
    the Code. Once this is done, within the parameters fixed by the Code,
    and as expounded upon by our judgments in Innoventive Industries
    Ltd. v. ICICI Bank, (2018) 1 SCC 407 and Macquarie Bank Ltd v.
    Shilpi Cable Technologies Ltd. (2018) 2 SCC 674, the Adjudicating
    Authority then appoints an interim resolution professional who takes
    administrative decisions as to the day to day running of the corporate
    debtor; collation of claims and their admissions; and the calling for
    resolution plans in the manner stated above. After a resolution plan is
    approved by the requisite majority of the Committee of Creditors, the
    aforesaid plan must then pass muster of the Adjudicating Authority
    under Section 31(1) of the Code. The Adjudicating Authority’s
    jurisdiction is circumscribed by Section 30(2) of the Code. In this
    context, the decision of this court in K. Sashidhar (supra) is of great
    relevance.
  53. In K. Sashidhar (supra) this Court was called upon to decide
    upon the scope of judicial review by the Adjudicating Authority. This
    Court set out the questions to be determined as follows:
    “18. Having heard learned counsel for the parties, the moot
    question is about the sequel of the approval of the
    61
    resolution plan by the CoC of the respective corporate
    debtor, namely KS&PIPL and IIL, by a vote of less than
    seventy five percent of voting share of the financial
    creditors; and about the correctness of the view taken by
    the NCLAT that the percentage of voting share of the
    financial creditors specified in Section 30(4) of the I&B
    Code is mandatory. Further, is it open to the adjudicating
    authority/appellate authority to reckon any other factor
    (other than specified in Sections 30(2) or 61(3) of the I&B
    Code as the case may be) which, according to the
    resolution applicant and the stakeholders supporting the
    resolution plan, may be relevant?
    xxx xxx xxx
  54. The Court, however, was not called upon to deal with
    the specific issue that is being considered in the present
    cases namely, the scope of judicial review by the
    adjudicatory authority in relation to the opinion expressed
    by the CoC on the proposal for approval of the resolution
    plan.”
    After adverting to the 2016 Regulations, the Court set out the
    jurisdiction of the Adjudicating Authority as well as the Appellate
    Tribunal as follows:
    “42. Whereas, the discretion of the adjudicating authority
    (NCLT) is circumscribed by Section 31 limited to scrutiny of
    the resolution plan “as approved” by the requisite percent
    of voting share of financial creditors. Even in that enquiry,
    the grounds on which the adjudicating authority can reject
    the resolution plan is in reference to matters specified in
    Section 30(2), when the resolution plan does not conform
    to the stated requirements. Reverting to Section 30(2), the
    enquiry to be done is in respect of whether the resolution
    plan provides: (i) the payment of insolvency resolution
    process costs in a specified manner in priority to the
    repayment of other debts of the corporate debtor, (ii) the
    repayment of the debts of operational creditors in
    62
    prescribed manner, (iii) the management of the affairs of
    the corporate debtor, (iv) the implementation and
    supervision of the resolution plan, (v) does not contravene
    any of the provisions of the law for the time being in force,
    (vi) conforms to such other requirements as may be
    specified by the Board. The Board referred to is established
    under Section 188 of the I&B Code. The powers and
    functions of the Board have been delineated in Section 196
    of the I&B Code. None of the specified functions of the
    Board, directly or indirectly, pertain to regulating the
    manner in which the financial creditors ought to or ought
    not to exercise their commercial wisdom during the voting
    on the resolution plan under Section 30(4) of the I&B Code.
    The subjective satisfaction of the financial creditors at the
    time of voting is bound to be a mixed baggage of variety of
    factors. To wit, the feasibility and viability of the proposed
    resolution plan and including their perceptions about the
    general capability of the resolution applicant to translate
    the projected plan into a reality. The resolution applicant
    may have given projections backed by normative data but
    still in the opinion of the dissenting financial creditors, it
    would not be free from being speculative. These aspects
    are completely within the domain of the financial creditors
    who are called upon to vote on the resolution plan under
    Section 30(4) of the I&B Code.
  55. For the same reason, even the jurisdiction of the
    NCLAT being in continuation of the proceedings would be
    circumscribed in that regard and more particularly on
    account of Section 32 of the I&B Code, which envisages
    that any appeal from an order approving the resolution plan
    shall be in the manner and on the grounds specified in
    Section 61(3) of the I&B Code. Section 61(3) of the I&B
    Code reads thus:
    “61. Appeals and Appellate Authority.-(1) Notwithstanding
    anything to the contrary contained under the Companies
    Act, 2013 (18 of 2013), any person aggrieved by the
    order of the Adjudicating Authority under this part may
    63
    prefer an appeal to the National Company Law Appellate
    Tribunal.
    (2) xxx xxx xxx
    (3) An appeal against an order approving a resolution
    plan under section 31 may be filed on the following
    grounds, namely:—
    (i) the approved resolution plan is in contravention of the
    provisions of any law for the time being in force;
    (ii) there has been material irregularity in exercise of the
    powers by the resolution professional during the
    corporate insolvency resolution period;
    (iii) the debts owed to operational creditors of the
    corporate debtor have not been provided for in the
    resolution plan in the manner specified by the Board;
    (iv) the insolvency resolution process costs have not
    been provided for repayment in priority to all other debts;
    or
    (v) the resolution plan does not comply with any other
    criteria specified by the Board.
    xxxxxxxxx.”
  56. On a bare reading of the provisions of the I&B Code, it
    would appear that the remedy of appeal under Section
    61(1) is against an “order passed by the adjudicating
    authority (NCLT)” – which we will assume may also pertain
    to recording of the fact that the proposed resolution plan
    has been rejected or not approved by a vote of not less
    than 75% of voting share of the financial creditors.
    Indubitably, the remedy of appeal including the width of
    jurisdiction of the appellate authority and the grounds of
    appeal, is a creature of statute. The provisions investing
    jurisdiction and authority in the NCLT or NCLAT as noticed
    earlier, has not made the commercial decision exercised by
    the CoC of not approving the resolution plan or rejecting
    the same, justiciable. This position is reinforced from the
    limited grounds specified for instituting an appeal that too
    64
    against an order “approving a resolution plan” under
    Section 31. First, that the approved resolution plan is in
    contravention of the provisions of any law for the time
    being in force. Second, there has been material irregularity
    in exercise of powers “by the resolution professional”
    during the corporate insolvency resolution period. Third, the
    debts owed to operational creditors have not been provided
    for in the resolution plan in the prescribed manner. Fourth,
    the insolvency resolution plan costs have not been
    provided for repayment in priority to all other debts. Fifth,
    the resolution plan does not comply with any other criteria
    specified by the Board. Significantly, the matters or grounds
  • be it under Section 30(2) or under Section 61(3) of the
    I&B Code – are regarding testing the validity of the
    “approved” resolution plan by the CoC; and not for
    approving the resolution plan which has been disapproved
    or deemed to have been rejected by the CoC in exercise of
    its business decision.
  1. Indubitably, the inquiry in such an appeal would be
    limited to the power exercisable by the resolution
    professional under Section 30(2) of the I&B Code or, at
    best, by the adjudicating authority (NCLT) under Section
    31(2) read with 31(1) of the I&B Code. No other inquiry
    would be permissible. Further, the jurisdiction bestowed
    upon the appellate authority (NCLAT) is also expressly
    circumscribed. It can examine the challenge only in relation
    to the grounds specified in Section 61(3) of the I&B Code,
    which is limited to matters “other than” enquiry into the
    autonomy or commercial wisdom of the dissenting financial
    creditors. Thus, the prescribed authorities (NCLT/NCLAT)
    have been endowed with limited jurisdiction as specified in
    the I&B Code and not to act as a court of equity or exercise
    plenary powers.
  2. In our view, neither the adjudicating authority (NCLT)
    nor the appellate authority (NCLAT) has been endowed
    with the jurisdiction to reverse the commercial wisdom of
    the dissenting financial creditors and that too on the
    specious ground that it is only an opinion of the minority
    65
    financial creditors. The fact that substantial or majority
    percent of financial creditors have accorded approval to the
    resolution plan would be of no avail, unless the approval is
    by a vote of not less than 75% (after amendment of 2018
    w.e.f. 06.06.2018, 66%) of voting share of the financial
    creditors. To put it differently, the action of liquidation
    process postulated in Chapter-III of the I&B Code, is
    avoidable, only if approval of the resolution plan is by a
    vote of not less than 75% (as in October, 2017) of voting
    share of the financial creditors. Conversely, the legislative
    intent is to uphold the opinion or hypothesis of the minority
    dissenting financial creditors. That must prevail, if it is not
    less than the specified percent (25% in October, 2017; and
    now after the amendment w.e.f. 06.06.2018, 44%). The
    inevitable outcome of voting by not less than requisite
    percent of voting share of financial creditors to disapprove
    the proposed resolution plan, de jure, entails in its deemed
    rejection.
    xxx xxx xxx
  3. The argument, though attractive at the first blush, but if
    accepted, would require us to re-write the provisions of the
    I&B Code. It would also result in doing violence to the
    legislative intent of having consciously not stipulated that
    as a ground – to challenge the commercial wisdom of the
    minority (dissenting) financial creditors. Concededly, the
    process of resolution plan is necessitated in respect of
    corporate debtors in whom their financial creditors have
    lost hope of recovery and who have turned into nonperformer or a chronic defaulter. The fact that the
    concerned corporate debtor was still able to carry on its
    business activities does not obligate the financial creditors
    to postpone the recovery of the debt due or to prolong their
    losses indefinitely. Be that as it may, the scope of enquiry
    and the grounds on which the decision of “approval” of the
    resolution plan by the CoC can be interfered with by the
    adjudicating authority (NCLT), has been set out in Section
    31(1) read with Section 30(2) and by the appellate tribunal
    (NCLAT) under Section 32 read with Section 61(3) of the
    66
    I&B Code. No corresponding provision has been envisaged
    by the legislature to empower the resolution professional,
    the adjudicating authority (NCLT) or for that matter the
    appellate authority (NCLAT), to reverse the “commercial
    decision” of the CoC muchless of the dissenting financial
    creditors for not supporting the proposed resolution plan.
    Whereas, from the legislative history there is contra
    indication that the commercial or business decisions of the
    financial creditors are not open to any judicial review by the
    adjudicating authority or the appellate authority.
  4. Suffice it to observe that in the I&B Code and the
    regulations framed thereunder as applicable in October
    2017, there was no need for the dissenting financial
    creditors to record reasons for disapproving or rejecting a
    resolution plan. Further, as aforementioned, there is no
    provision in the I&B Code which empowers the adjudicating
    authority (NCLT) to oversee the justness of the approach of
    the dissenting financial creditors in rejecting the proposed
    resolution plan or to engage in judicial review thereof.
    Concededly, the inquiry by the resolution professional
    precedes the consideration of the resolution plan by the
    CoC. The resolution professional is not required to express
    his opinion on matters within the domain of the financial
    creditor(s), to approve or reject the resolution plan, under
    Section 30(4) of the I&B Code. At best, the Adjudicating
    Authority (NCLT) may cause an enquiry into the “approved”
    resolution plan on limited grounds referred to in Section
    30(2) read with Section 31(1) of the I&B Code. It cannot
    make any other inquiry nor is competent to issue any
    direction in relation to the exercise of commercial wisdom
    of the financial creditors – be it for approving, rejecting or
    abstaining, as the case may be. Even the inquiry before the
    Appellate Authority (NCLAT) is limited to the grounds under
    Section 61(3) of the I&B Code. It does not postulate
    jurisdiction to undertake scrutiny of the justness of the
    opinion expressed by financial creditors at the time of
    voting. To take any other view would enable even the
    minority dissenting financial creditors to question the logic
    or justness of the commercial opinion expressed by the
    67
    majority of the financial creditors albeit by requisite percent
    of voting share to approve the resolution plan; and in the
    process authorize the adjudicating authority to reject the
    approved resolution plan upon accepting such a challenge.
    That is not the scope of jurisdiction vested in the
    adjudicating authority under Section 31 of the I&B Code
    dealing with approval of the resolution plan.”
    Thus, it is clear that the limited judicial review available, which can in
    no circumstance trespass upon a business decision of the majority of
    the Committee of Creditors, has to be within the four corners of
    Section 30(2) of the Code, insofar as the Adjudicating Authority is
    concerned, and Section 32 read with Section 61(3) of the Code,
    insofar as the Appellate Tribunal is concerned, the parameters of
    such review having been clearly laid down in K. Sashidhar (supra).
  5. However, Shri Sibal exhorted us to hold that K. Sashidhar
    (supra) missed a very vital provision of the Code which is contained
    in Section 60(5) of the Code. Section 60(5) reads as follows:
    “60. Adjudicating Authority for corporate persons
    xxx xxx xxx
    (5) Notwithstanding anything to the contrary contained in
    any other law for the time being in force, the National
    Company Law Tribunal shall have jurisdiction to entertain
    or dispose of—
    (a) any application or proceeding by or against the
    corporate debtor or corporate person;
    (b) any claim made by or against the corporate debtor or
    corporate person, including claims by or against any of its
    subsidiaries situated in India; and
    68
    (c) any question of priorities or any question of law or facts,
    arising out of or in relation to the insolvency resolution or
    liquidation proceedings of the corporate debtor or corporate
    person under this Code.”
    It will be noticed that the non-obstante clause of Section 60(5) speaks
    of any other law for the time being in force, which obviously cannot
    include the provisions of the Code itself. Secondly, Section 60(5)(c) is
    in the nature of a residuary jurisdiction vested in the NCLT so that the
    NCLT may decide all questions of law or fact arising out of or in
    relation to insolvency resolution or liquidation under the Code. Such
    residual jurisdiction does not in any manner impact Section 30(2) of
    the Code which circumscribes the jurisdiction of the Adjudicating
    Authority when it comes to the confirmation of a resolution plan, as
    has been mandated by Section 31(1) of the Code. A harmonious
    reading, therefore, of Section 31(1) and Section 60(5) of the Code
    would lead to the result that the residual jurisdiction of the NCLT
    under Section 60(5)(c) cannot, in any manner, whittle down Section
    31(1) of the Code, by the investment of some discretionary or equity
    jurisdiction in the Adjudicating Authority outside Section 30(2) of the
    Code, when it comes to a resolution plan being adjudicated upon by
    the Adjudicating Authority. This argument also must needs be
    rejected.
    69
  6. The minimum value that is required to be paid to operational
    creditors under a resolution plan is set out under Section 30(2)(b) of
    the Code as being the amount to be paid to such creditors in the
    event of a liquidation of the corporate debtor under Section 53. The
    Insolvency Committee constituted by the Government in 2018 was
    tasked with studying the major issues that arise in the working of the
    Code and to recommend changes, if any, required to be made to the
    Code. The Insolvency Committee Report, 2018 (hereinafter referred
    to as “The Committee Report, 2018”), inter alia, deliberated upon the
    objections to Section 30(2)(b) of the Code, inasmuch as it provided
    for a minimum payment of a “liquidation value” to the operational
    creditors and nothing more, and concluded as follows:
    “18. VALUE GUARANTEED TO OPERATIONAL
    CREDITORS UNDER A RESOLUTION PLAN
    18.1 Section 30(2)(b) of the Code requires the RP to
    ensure that every resolution plan provides for payment of
    at least the liquidation value to all operational creditors.
    Regulation 38(1)(b) of the CIRP Regulations provides that
    liquidation value must be paid to operational creditors prior
    in time to all financial creditors and within thirty days of
    approval of resolution plan by the NCLT. The BLRC Report
    states that the guarantee of liquidation value has been
    provided to operational creditors since they are not allowed
    to be part of the CoC which determines the fate of the
    corporate debtor. (BLRC Report, 2015)
    18.2 However, certain public comments received by the
    Committee stated that, in practice, the liquidation value
    which is guaranteed to the operational creditors may be
    negligible as they fall under the residual category of
    70
    creditors under section 53 of the Code. Particularly, in the
    case of unsecured operational creditors, it was argued that
    they will have no incentive to continue supplying goods or
    services to the corporate debtor for it to remain a ‘going
    concern’ given that their chances of recovery are abysmally
    low.
    18.3 The Committee deliberated on the status of
    operational creditors and their role in the CIRP. It
    considered the viability of using ‘fair value’ as the floor to
    determine the value to be given to operational creditors.
    Fair value is defined under regulation 2(1)(hb) of the CIRP
    Regulations to mean “the estimated realizable value of the
    assets of the corporate debtor, if they were to be
    exchanged on the insolvency commencement date
    between a willing buyer and a willing seller in an arm’s
    length transaction, after proper marketing and where the
    parties had acted knowledgeably, prudently and without
    compulsion.” However, it was felt that assessment and
    payment of the fair value upfront, may be difficult. The
    Committee also discussed the possibility of using
    ‘resolution value’ or ‘bid value’ as the floor to be guaranteed
    to operational creditors but neither of these were deemed
    suitable.
    18.4 It was stated to the Committee that liquidation value
    has been provided as a floor and in practice, many
    operational creditors may get payments above this value.
    The Committee appreciated the need to protect interests of
    operational creditors and particularly Micro, Small and
    Medium Enterprises (“MSMEs”). In this regard, the
    Committee observed that in practice most of the
    operational creditors that are critical to the business of the
    corporate debtor are paid out as part of the resolution plan
    as they have the power to choke the corporate debtor by
    cutting off supplies. Illustratively, in the case of SynergiesDooray Automative Ltd. (Company Appeal No. 123/2017,
    NCLT Hyderabad, Date of decision – 02 August, 2017), the
    original resolution plan provided for payment to operational
    creditors above the liquidation value but contemplated that
    it would be made in a staggered manner after payment to
    financial creditors, easing the burden of the 30-day
    mandate provided under regulation 38 of the CIRP
    Regulations. However, the same was modified by the NCLT
    71
    and operational creditors were required to be paid prior in
    time, due to the quantum of debt and nature of the
    creditors. Similarly, the approved resolution plan in the
    case of Hotel Gaudavan Pvt. Ltd. (Company Appeal No.
    37/2017, NCLT Principal Bench, Date of decision – 13
    December, 2017) provided for payment of all existing dues
    of the operational creditors without any write-off. The
    Committee felt that the interests of operational creditors
    must be protected, not by tinkering with what minimum
    must be guaranteed to them statutorily, but by improving
    the quality of resolution plans overall. This could be
    achieved by dedicated efforts of regulatory bodies including
    the IBBI and Indian Banks’ Association.
    18.5 Finally, the Committee agreed that presently, most of
    the resolution plans are in the process of submission and
    there is no empirical evidence to further the argument that
    operational creditors do not receive a fair share in the
    resolution process under the current scheme of the Code.
    Hence, the Committee decided to continue with the present
    arrangement without making any amendments to the
    Code.”
    (emphasis supplied)
    Ultimately, the Committee decided against any amendment to be
    made to the existing scheme of the Code, thereby retaining the
    prescription as to the minimum value that was to be paid to the
    operational creditors under a resolution plan.
  7. However, as has been correctly argued on behalf of the
    operational creditors, the preamble of the Code does speak of
    maximisation of the value of assets of corporate debtors and the
    balancing of the interests of all stakeholders. There is no doubt that a
    key objective of the Code is to ensure that the corporate debtor keeps
    operating as a going concern during the insolvency resolution
    72
    process and must therefore make past and present payments to
    various operational creditors without which such operation as a going
    concern would become impossible. Sections 5(26), 14(2), 20(1),
    20(2)(d) and (e) of the Code read with Regulations 37 and 38 of the
    2016 Regulations all speak of the corporate debtor running as a
    going concern during the insolvency resolution process. Workmen
    need to be paid, electricity dues need to be paid, purchase of raw
    materials need to be made, etc. This is in fact reflected in this court’s
    judgment in Swiss Ribbons (supra) as follows:
    “26. The Preamble of the Code states as follows:
    “An Act to consolidate and amend the laws relating to
    reorganisation and insolvency resolution of corporate
    persons, partnership firms and individuals in a time-bound
    manner for maximisation of value of assets of such
    persons, to promote entrepreneurship, availability of credit
    and balance the interests of all the stakeholders including
    alteration in the order of priority of payment of government
    dues and to establish an Insolvency and Bankruptcy Board
    of India, and for matters connected therewith or incidental
    thereto.”
  8. As is discernible, the Preamble gives an insight into
    what is sought to be achieved by the Code. The Code is
    first and foremost, a Code for reorganisation and
    insolvency resolution of corporate debtors. Unless such
    reorganisation is effected in a time-bound manner, the
    value of the assets of such persons will deplete. Therefore,
    maximisation 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. This, in turn, will promote
    entrepreneurship as the persons in management of the
    corporate debtor are removed and replaced by
    73
    entrepreneurs. When, therefore, a resolution plan takes off
    and the corporate debtor is brought back into the economic
    mainstream, it is able to repay its debts, which, in turn,
    enhances the viability of credit in the hands of banks and
    financial institutions. Above all, ultimately, the interests of
    all stakeholders are looked after as the corporate debtor
    itself becomes a beneficiary of the resolution scheme—
    workers are paid, the creditors in the long run will be repaid
    in full, and shareholders/investors are able to maximise
    their investment. Timely resolution of a corporate debtor
    who is in the red, by an effective legal framework, would go
    a long way to support the development of credit markets.
    Since more investment can be made with funds that have
    come back into the economy, business then eases up,
    which leads, overall, to higher economic growth and
    development of the Indian economy. What is interesting to
    note is that the Preamble does not, in any manner, refer to
    liquidation, which is only availed of as a last resort if there
    is either no resolution plan or the resolution plans
    submitted are not up to the mark. Even in liquidation, the
    liquidator can sell the business of the corporate debtor as a
    going concern. (See ArcelorMittal [ArcelorMittal (India) (P)
    Ltd. v. Satish Kumar Gupta, (2019) 2 SCC 1] at para 83, fn
    3).”
    (emphasis supplied)
  9. This is the reason why Regulation 38(1A) speaks of a resolution
    plan including a statement as to how it has dealt with the interests of
    all stakeholders, including operational creditors of the corporate
    debtor. Regulation 38(1) also states that the amount due to
    operational creditors under a resolution plan shall be given priority in
    payment over financial creditors. If nothing is to be paid to operational
    creditors, the minimum, being liquidation value – which in most cases
    74
    would amount to nil after secured creditors have been paid – would
    certainly not balance the interest of all stakeholders or maximise the
    value of assets of a corporate debtor if it becomes impossible to
    continue running its business as a going concern. Thus, it is clear that
    when the Committee of Creditors exercises its commercial wisdom to
    arrive at a business decision to revive the corporate debtor, it must
    necessarily take into account these key features of the Code before it
    arrives at a commercial decision to pay off the dues of financial and
    operational creditors. There is no doubt whatsoever that the ultimate
    discretion of what to pay and how much to pay each class or subclass of creditors is with the Committee of Creditors, but, the decision
    of such Committee must reflect the fact that it has taken into account
    maximising the value of the assets of the corporate debtor and the
    fact that it has adequately balanced the interests of all stakeholders
    including operational creditors. This being the case, judicial review of
    the Adjudicating Authority that the resolution plan as approved by the
    Committee of Creditors has met the requirements referred to in
    Section 30(2) would include judicial review that is mentioned in
    Section 30(2)(e), as the provisions of the Code are also provisions of
    law for the time being in force. Thus, while the Adjudicating Authority
    cannot interfere on merits with the commercial decision taken by the
    Committee of Creditors, the limited judicial review available is to see
    75
    that the Committee of Creditors has taken into account the fact that
    the corporate debtor needs to keep going as a going concern during
    the insolvency resolution process; that it needs to maximise the value
    of its assets; and that the interests of all stakeholders including
    operational creditors has been taken care of. If the Adjudicating
    Authority finds, on a given set of facts, that the aforesaid parameters
    have not been kept in view, it may send a resolution plan back to the
    Committee of Creditors to re-submit such plan after satisfying the
    aforesaid parameters. The reasons given by the Committee of
    Creditors while approving a resolution plan may thus be looked at by
    the Adjudicating Authority only from this point of view, and once it is
    satisfied that the Committee of Creditors has paid attention to these
    key features, it must then pass the resolution plan, other things being
    equal.
    Secured and unsecured creditors; the equality principle
  10. The impugned NCLAT judgment has applied an equality
    principle down the board stating that whether creditors are secured or
    unsecured, financial or operational, equitable treatment demands that
    they all be treated as one group of creditors similarly situate, as a
    result of which no differences can be made in terms of the amount of
    debt to be repaid to them based on whether they are secured or
    76
    unsecured, and whether they are financial or operational creditors.
    The aforesaid judgment relies upon certain paragraphs of this Court’s
    judgment in Swiss Ribbons (supra) to buttress the aforesaid finding.
  11. The UNCITRAL Legislative Guide states:-
    “Designing the key objectives and structure of an
    effective and efficient insolvency law
    xxx xxx xxx
  12. Ensuring equitable treatment of similarly situated
    creditors
  13. The objective of equitable treatment is based on the
    notion that, in collective proceedings, creditors with similar
    legal rights should be treated fairly, receiving a distribution
    on their claim in accordance with their relative ranking and
    interests. This key objective recognizes that all creditors do
    not need to be treated identically, but in a manner that
    reflects the different bargains they have struck with the
    debtor. This is less relevant as a defining factor where
    there is no specific debt contract with the debtor, such as in
    the case of damage claimants (e.g. for environmental
    damage) and tax authorities. Even though the principle of
    equitable treatment may be modified by social policy on
    priorities and give way to the prerogatives pertaining to
    holders of claims or interests that arise, for example, by
    operation of law, it retains its significance by ensuring that
    the priority accorded to the claims of a similar class affects
    all members of the class in the same manner. The policy of
    equitable treatment permeates many aspects of an
    insolvency law, including the application of the stay or
    suspension, provisions to set aside acts and transactions
    and recapture value for the insolvency estate, classification
    of claims, voting procedures in reorganization and
    distribution mechanisms. An insolvency law should address
    problems of fraud and favouritism that may arise in cases
    of financial distress by providing, for example, that acts and
    77
    transactions detrimental to equitable treatment of creditors
    can be avoided.
    xxx xxx xxx
  14. Approval of a plan
    xxx xxx xxx
    (i) Classification of claims
  15. The primary purpose of classifying claims is to satisfy
    the requirements to provide fair and equitable treatment to
    creditors, treating similarly situated claims in the same
    manner and ensuring that all creditors in a particular class
    are offered the same menu of terms by the reorganization
    plan. It is one way to ensure that priority claims are treated
    in accordance with the priority established under the
    insolvency law. It may also make it easier to treat the
    claims of major creditors who can be persuaded to receive
    different treatment from the general class of unsecured
    creditors, where that treatment may be necessary to make
    the plan feasible. Classification can, however, increase the
    complexity and costs of the insolvency proceedings,
    depending upon how many different classes are identified.
    An alternative, to ensure that creditors who should receive
    special treatment are not oppressed by the majority, may
    be to give those groups the opportunity to challenge the
    decision of the majority in court if they have not been
    treated in a fair and equitable manner. The fact that such a
    facility exists may operate to discourage majorities from
    making proposals that would unfairly disadvantage priority
    creditors.
    (ii) Treatment of dissenting creditors
  16. As to the treatment of dissenting creditors, it will be
    essential to provide a way of imposing a plan agreed by the
    majority of a class upon the dissenting minority in order to
    increase the chances of success of the reorganization. It
    may also be necessary, depending upon the mechanism
    that is chosen for voting on the plan and whether creditors
    vote in classes, to consider whether the plan can be made
    binding upon dissenting classes of creditors and other
    affected parties.
    78
  17. To the extent that a plan can be approved and enforced
    upon dissenting parties, there will be a need to ensure that
    the content of the plan provides appropriate protection for
    those dissenting parties and, in particular, that their rights
    are not unfairly affected. The law might provide, for
    example, that dissenting creditors can not be bound unless
    assured of certain treatment. As a general principle, that
    treatment might be that the creditors will receive at least as
    much under the plan as they would have received in
    liquidation proceedings. If the creditors are secured, the
    treatment required may be that the creditor receives
    payment of the value of its security interest, while in the
    case of unsecured creditors it may be that any junior
    interests, including equity holders, receive nothing. To the
    extent that the approval procedure results in a significant
    impairment of the claims of creditors and other affected
    parties without their consent (in particular secured
    creditors), there is a risk that creditors will be unwilling to
    provide credit in the future. The mechanism for approval of
    the plan, and the availability of appropriate safeguards, is
    therefore of considerable importance to the protection of
    these interests.
    xxx xxx xxx
    (c) Approval by secured and priority creditors
    (i) The need for secured and priority creditors to vote
  18. In many cases of insolvency, secured claims will
    represent a significant portion of the value of the debt owed
    by the debtor. Different approaches can be taken to
    approval of the plan by secured and priority creditors. As a
    general principle, however, the extent to which a secured
    creditor is entitled to vote will depend upon the manner in
    which the insolvency regime treats secured creditors, the
    extent to which a reorganization plan can affect the security
    interest of the secured creditor and the extent to which the
    value of encumbered assets will satisfy the secured
    creditor’s claim.
  19. Under one approach, where the insolvency law does
    not affect secured creditors and, in particular, does not
    preclude them from enforcing their rights against the
    encumbered assets, there is no need to give these
    79
    creditors the right to vote since their security interests will
    not be affected by the plan. Priority creditors are in a similar
    position under this approach—the plan cannot impair the
    value of their claims and they are entitled to receive full
    payment before creditors without priority are paid. The
    limitation of this approach, however, is that it may reduce
    the chances for a successful reorganization where the
    encumbered assets or modification of the rights of such
    creditors are key to the success of the plan. If the secured
    creditor is not bound by the plan, the election by the
    secured creditor to enforce its rights, such as by
    repossessing and selling the encumbered asset, may make
    reorganization of the business impossible to implement.
    Similarly, there may be circumstances where ensuring a
    successful reorganization requires that priority creditors
    receive less than the full value of their claims upon
    approval of the plan. The prospects for reorganization may
    improve if priority creditors will accept payment over time
    and if secured creditors will acquiesce when the terms of
    the secured debt are modified over time. If these creditors
    are not included in the plan and entitled to vote on
    proposals affecting their rights, modification of those rights
    cannot be achieved.
    (ii) Classes of secured and priority creditors
  20. Recognizing the need for secured and priority creditors
    to participate, a second approach provides for these
    creditors to vote as classes separate from unsecured
    creditors on a plan that would modify or affect the terms of
    their claims, or to otherwise consent to be bound by the
    plan. Adopting such an approach provides a minimum
    safeguard for the adequate protection of these creditors
    and recognizes that the respective rights and interests of
    secured and priority creditors differ from those of
    unsecured creditors. In many cases, however, the rights of
    secured and priority creditors will differ from each other and
    it may not be feasible to require all secured creditors or all
    priority creditors to vote in a single class. In such cases,
    some laws provide that each secured creditor with
    separate rights to encumbered assets forms a class of its
    own. Those laws also provide that, where secured creditors
    do vote as a class (e.g. where there are multiple holders of
    bonds that are secured by the same assets), the requisite
    80
    majority of a class of secured creditors would generally be
    the same as that required for approval by unsecured
    creditors, although there are examples of laws that require
    different majorities depending upon the manner in which
    secured creditors rights are to be affected by the plan (e.g.
    one law provides that a three-quarter majority is required
    where the maturity date is to be extended and a four-fifths
    majority where the rights are to be otherwise impaired).
    Similarly, each rank of priority claims would be a separate
    class under those laws.
    xxx xxx xxx
    (iii) Where secured creditors are not fully secured
  21. To the extent that the value of the encumbered asset
    will not satisfy the full amount of the secured creditor’s
    claim, a number of insolvency laws provide that those
    secured creditors should vote with ordinary unsecured
    creditors in respect of the unsatisfied portion of the claim.
    This may raise difficult questions of valuation in order to
    determine whether, and to what extent, a secured creditor
    is in fact secured. For example, where three creditors hold
    security interests over the same asset, the value of that
    asset may only support the claim first in priority and part of
    the second in priority. The second creditor therefore may
    have a right to vote only in respect of the unsecured portion
    of its claim, while the third creditor will be totally unsecured.
    The valuation of the asset is therefore crucial to
    determining the extent to which these secured creditors are
    secured and whether or not they are entitled to vote as
    unsecured creditors with respect to any portion of their
    claim.
  22. In determining which approach should be taken to this
    issue, it will be important to assess the effect of the desired
    approach upon the availability and cost of secured
    financing and to provide as much certainty and
    predictability as possible, balancing this against the
    objectives of insolvency law and the benefits to an
    economy of successful reorganization.”
    (emphasis supplied)
    81
    The BLRC Report, 2015 is of great help in understanding what is
    meant by respecting the rights of all creditors equally. Paragraph
    3.4.2 of the said report states:
    “3.4.2 Principles driving the design
    The Committee chose the following principles to design the
    new insolvency and bankruptcy resolution framework:
    IV. The Code will ensure a collective process.
  23. The law must ensure that all key stakeholders will
    participate to collectively assess viability. The law must
    ensure that all creditors who have the capability and the
    willingness to restructure their liabilities must be part of the
    negotiation process. The liabilities of all creditors who are
    not part of the negotiation process must also be met in any
    negotiated solution.
    V. The Code will respect the rights of all creditors equally.
  24. The law must be impartial to the type of creditor in
    counting their weight in the vote on the final solution in
    resolving insolvency.
    VI. The Code must ensure that, when the negotiations fail
    to establish viability, the outcome of bankruptcy must be
    binding.
  25. The law must order the liquidation of an enterprise
    which has been found unviable. This outcome of the
    negotiations should be protected against all appeals other
    than for very exceptional cases.
    VII. The Code must ensure clarity of priority, and that the
    rights of all stakeholders are upheld in resolving
    bankruptcy.
  26. The law must clearly lay out the priority of distributions
    in bankruptcy to all stakeholders. The priority must be
    designed so as to incentivise all stakeholders to participate
    in the cycle of building enterprises with confidence.
  27. While the law must incentivise collective action in
    resolving bankruptcy, there must be a greater flexibility to
    allow individual action in resolution and recovery during
    82
    bankruptcy compared with the phase of insolvency
    resolution.”
    (emphasis supplied)
  28. That equitable treatment of creditors is equitable treatment only
    within the same class is echoed in American Jurisprudence, 2d,
    Volume 9 (hereinafter referred to as “American Jurisprudence”) as
    follows:
    Ҥ 6. Distribution
    Equality of distribution is the theme of a bankruptcy act and
    a prime bankruptcy policy. The bankruptcy system is
    designed to distribute an estate as equally as possible
    among similarly situated creditors. Thus, creditors of equal
    status must be treated equally and equitably.
    One of the conditions placed upon the debtor’s use of the
    Bankruptcy Code to obtain a fresh start is that the debtor
    treat all creditors fairly.
    The bankruptcy process is the process by which a res,
    under the constructive possession of the bankruptcy court,
    is administered for the purpose of allowing, disallowing,
    organizing, and prioritizing claims of creditors in, to, and
    upon the res. Although the central policy of the Bankruptcy
    Code is equality of distribution among all creditors,
    exceptions are made by granting priority to certain claims
    and subordinating others. Pursuant to the central policy,
    creditors of equal priority should receive a pro rata share of
    the debtor’s property; thus, when there is not enough to go
    around, the bankruptcy judge must establish priorities and
    apportion assets among creditors with the same priority.”

(emphasis supplied)
Shri Sibal, however, relied upon the following statements in American
Jurisprudence, which read as follows:
“Chapter 11 reorganization, specifically, has been called a
collective remedy, designed to find the optimum solution for
83
all parties connected with a business – not solely for the
business itself and not solely for its creditors.
xxx xxx xxx
Protecting creditors in general is an important objective as
is protecting creditors from each other.”
There is no doubt that even under our Code, reorganisation is a
collective remedy designed to find an optimum solution for all parties
connected with a business in the manner provided by the Code.
Protecting creditors in general is, no doubt, an important objective –
the observation that protecting creditors from each other is also
important, which must be read with footnote 7 in the American
Jurisprudence, which reads as under:
“In re First Central Financial Corp., 377 F.3d 209 (2d Cir.
2004)
The Bankruptcy Code generally does not imbue creditors
with greater rights in a bankruptcy proceeding than they
would enjoy under otherwise applicable non-bankruptcy
law unless it is to serve some bankruptcy purpose. In re
Vermont Elec. Generation & Transmission Co-op., Inc., 240
B.R. 476 (Bankr. D. Vt. 1999)”
A reading of this footnote will show that what is meant by protecting
creditors from each other is only that a Bankruptcy Code should not
be read so as to imbue creditors with greater rights in a bankruptcy
proceeding than they would enjoy under the general law, unless it is
to serve some bankruptcy purpose.
84

  1. The importance of valuing security interests separately from
    interests of creditors who do not have security is well set out in the
    IMF paper on Development of Standards for Security Interest by
    Pascale De Boeck and Thomas Laryea, Counsel, IMF Legal
    Department. The learned authors state:
    “I.VALUE OF SECURITY INTERESTS
    In developing standards for the legal framework of security
    interests, it is important to recognize that security interests
    serve discernable economic goals. Security interests
    reduce credit risk by increasing the creditor’s likelihood to
    be repaid, not only when payment is due, but also in the
    event of a default by its debtor. This increased likelihood of
    repayment produces wider economic benefits. First, the
    availability of credit is enhanced; borrowers obtain credit in
    cases where they would have otherwise failed absent a
    security interest. Second, credit is also made available on
    better terms involving, for instance, lower interest rates and
    longer maturities. The relative cost of secured credit under
    that of unsecured credit reflects the commercial recognition
    of the advantages of secured credit in connection with the
    recovery of the debt.
    The efficiency of the legal framework for secured credit is a
    critical factor in the strengthening of financial systems. In
    the face of financial sector crises, an effective legal
    framework of security interests enables banks and other
    credit institutions to mitigate the deterioration of their
    claims, it also facilitates corporate restructuring by
    providing tools to support interim financing. In the longer
    term, an effective framework for security interests fosters
    economic growth. Specifically, it supports access to
    affordable credit, thereby facilitating the acquisition of
    goods. Further, it increases the capacity of enterprises to
    finance expansion fueled by the supply of credit. Also, an
    effective framework for security interests can support the
    development of a sound banking system and promotion of
    capital markets founded on the efficient allocation of credit
    85
    and effective and predictable mechanisms for realizing
    credit claims.
    xxx xxx xxx
    III. General Principles
    xxx xxx xxx
    • Establish clear and predictable priority rules
    The issue of priorities between various security interest
    devices and between various types of creditors is
    extremely complex, largely due to the myriad of possible
    competing interests. Whatever priority rules a legal
    framework establishes, they ought to be clear, predictable
    and transparent. They need to allow creditors to assess
    their position before creating a security interest and to
    enforce their rights in case of default in a timely, predictable
    and cost-efficient manner.
    • Facilitate the enforcement of creditor rights
    Enforcement is a critical factor in the law and functioning of
    secured credit. A security interest is of little value to a
    creditor unless the creditor is able to enforce it in a
    predictable, efficient and timely manner vis-à-vis the debtor
    and third parties. An effective framework needs to allow
    quick and predictable enforcement both within and outside
    insolvency proceedings.”
  2. Likewise the World Bank Report of 2015 titled Principles for
    Effective Insolvency and Creditor/Debtor Regimes states:
    “Claims and Claims Resolution Procedures
    Treatment of Stakeholder Rights and Priorities
    C12.1 The rights of creditors and the priorities of claims
    established prior to insolvency proceedings under
    commercial or other applicable laws should be upheld in an
    insolvency proceeding to preserve the legitimate
    expectations of creditors and encourage greater
    predictability in commercial relationships. Deviations from
    this general rule should occur only where necessary to
    promote other compelling policies, such as the policy
    86
    supporting reorganization, or to maximize the insolvency
    estate’s value. Rules of priority should enable creditors to
    manage credit efficiently, consistent with the following
    additional principles:
    C12.2 The priority of secured creditors in their collateral
    should be upheld and, absent the secured creditor’s
    consent, its interest in the collateral should not be
    subordinated to other priorities granted in the course of the
    insolvency proceeding. Distributions to secured creditors
    should be made as promptly as possible.
    C12.3 Following distributions to secured creditors from
    their collateral and the payment of claims related to the
    costs and expenses of administration, proceeds available
    for distribution should be distributed pari passu to the
    remaining general unsecured creditors, unless there are
    compelling reasons to justify giving priority status to a
    particular class of claims. Public interests generally should
    not be given precedence over private rights. The number of
    priority classes should be kept to a minimum.
    C12.4 Workers are a vital part of an enterprise, and careful
    consideration should be given to balancing the rights of
    employees with those of other creditors.”
    However, Shri Sibal stated that this report should not be relied upon
    as an earlier World Bank Report of 2010, titled “A Global View of
    Business Insolvency Systems” (hereinafter referred to as the “2010
    Report”) had opined to the contrary.
  3. Quite apart from the fact that the 2010 report is an earlier
    report, which opined on the basis of the French system, that creditors
    are divided into two separate classes without any further subclassification and that the advantage of such system is that it avoids
    87
    potential conflict of interest among creditors in a particular class, the
    report then goes on to state:
    “In some cases, classification makes it easier to treat the
    claims of major creditors, who may be persuaded to opt to
    receive a different treatment from the general class of
    unsecured creditors, where such treatment is necessary to
    render the plan feasible. In such cases, the treatment for
    these major creditors is generally on less favorable terms
    than other, similarly situated creditors. Finally, classification
    may be a useful means of overriding the vote of a class of
    creditors that votes against the plan where the class is
    otherwise treated in a fair and equitable manner.4

    Even according to this report, therefore, a “cramdown” on dissentient
    creditors would pass muster under an insolvency law if such creditors
    will receive, under a resolution plan, an amount at least equal to what
    such creditors would receive in a liquidation proceeding being
    “liquidation value”.
  4. Also, Philip R. Wood’s book titled “Principles of International
    Insolvency” states:
    “Secured creditors are super-priority creditors on
    insolvency. Security must stand up on insolvency which is
    when it is needed most. Security which is valid between the
    parties but not as against the creditors of the debtor is
    futile. Bankruptcy law which freeze or delay or weaken or
    de-prioritise security on insolvency destroy what the law
    4 This override, which has come to be known as a “cramdown” based on its effect, allows
    the court to conclude that a rejecting class should be compelled to accept the plan where the
    class is paid in strict accordance with the relative priority of creditor claims and will receive
    under the plan a distribution in an amount equal to or greater than such creditors would
    receive in a liquidation proceeding. The rationale is that these creditors cannot claim “foul” if
    their recovery is at least as good as they would have received if they had prevailed in having
    the enterprise liquidated.
    88
    created. Hence the end is more important than the
    beginning.
    Rationale of security – The main purposes and policies of
    security are: protection of creditors on insolvency; the
    limitation of cascade or domino insolvencies; security
    encourages capital, e.g. enterprise finance; security
    reduces the cost of credit, e.g. margin collateral in markets;
    he who pays for the asset should have the right to the
    asset; security encourages the private rescue since the
    bank feels safer; security is defensive control, especially in
    the case of project finance; security is a fair exchange for
    the credit.
    Main Objections to security The objections to security
    are mainly historical, but they resurrect and live on. The
    hostility may stem from: debtor-protection stirred by the
    ancient hostility to usurers and money-lending and now
    expressed in consumer protection statutes; the prevention
    of false wealth, i.e. the debtor has many possessions but
    few assets – this is usually met by a requirement for
    possession (inefficient because not public) or public
    registration; unsecured creditors get less on insolvency and
    this is seen as a violation of bankruptcy equality, although
    more often it is motivated by desire to protect unpaid
    employees and small creditors; security disturbs the safety
    of commercial transactions because of priority risks, e.g.
    the purchaser of goods; the secured creditor can disrupt a
    rescue by selling an essential asset.”
  5. Indeed, if an “equality for all” approach recognising the rights of
    different classes of creditors as part of an insolvency resolution
    process is adopted, secured financial creditors will, in many cases, be
    incentivised to vote for liquidation rather than resolution, as they
    would have better rights if the corporate debtor was to be liquidated
    rather than a resolution plan being approved. This would defeat the
    entire objective of the Code which is to first ensure that resolution of
    89
    distressed assets takes place and only if the same is not possible
    should liquidation follow.
  6. Financial creditors are in the business of lending money. The
    RBI report on Trend and Progress of Banking in India, 2017-2018
    reflects that the net interest margin of Indian banks for the financial
    year 2017-2018 is averaged at 2.5%. Likewise, the global trend for
    net interest margin was at 3.3% for banks in the USA and 1.6% for
    banks in the UK in the year 2016, as per the data published on the
    website of the bank. Thus, it is clear that financial creditors earn profit
    by earning interest on money lent with low margins, generally being
    between 1 to 4%. Also, financial creditors are capital providers for
    companies, who in turn are able to purchase assets and provide a
    working capital to enable such companies to run their business
    operation, whereas operational creditors are beneficiaries of amounts
    lent by financial creditors which are then used as working capital, and
    often get paid for goods and services provided by them to the
    corporate debtor, out of such working capital. On the other hand,
    market research carried out by India Brand Equity Foundation, a trust
    established by the Ministry of Commerce and Industry, as regards the
    Oil and Gas sector, has stated that the business risk of operational
    creditors who operate with higher profit margins and shorter cyclical
    90
    repayments must needs be higher. Also, operational creditors have
    an immediate exit option, by stopping supply to the corporate debtor,
    once corporate debtors start defaulting in payment. Financial
    creditors may exit on their long-term loans, either upon repayment of
    the full amount or upon default, by recalling the entire loan facility
    and/or enforcing the security interest which is a time consuming and
    lengthy process which usually involves litigation. Financial creditors
    are also part of a regulated banking system which involves not merely
    declaring defaulters as non-performing assets but also involves
    restructuring such loans which often results in foregoing unpaid
    amounts of interest either wholly or partially. All these differences
    between financial and operational creditors have been reflected,
    albeit differently, in the judgment of Swiss Ribbons (supra). Thus,
    this Court in dealing with some of the differences has held:
    “50. According to us, it is clear that most financial creditors,
    particularly banks and financial institutions, are secured
    creditors whereas most operational creditors are
    unsecured, payments for goods and services as well as
    payments to workers not being secured by mortgaged
    documents and the like. The distinction between secured
    and unsecured creditors is a distinction which has obtained
    since the earliest of the Companies Acts both in the United
    Kingdom and in this country. Apart from the above, the
    nature of loan agreements with financial creditors is
    different from contracts with operational creditors for
    supplying goods and services. Financial creditors generally
    lend finance on a term loan or for working capital that
    enables the corporate debtor to either set up and/or
    operate its business. On the other hand, contracts with
    91
    operational creditors are relatable to supply of goods and
    services in the operation of business. Financial contracts
    generally involve large sums of money. By way of contrast,
    operational contracts have dues whose quantum is
    generally less. In the running of a business, operational
    creditors can be many as opposed to financial creditors,
    who lend finance for the set-up or working of business.
    Also, financial creditors have specified repayment
    schedules, and defaults entitle financial creditors to recall a
    loan in totality. Contracts with operational creditors do not
    have any such stipulations. Also, the forum in which
    dispute resolution takes place is completely different.
    Contracts with operational creditors can and do have
    arbitration clauses where dispute resolution is done
    privately. Operational debts also tend to be recurring in
    nature and the possibility of genuine disputes in case of
    operational debts is much higher when compared to
    financial debts. A simple example will suffice. Goods that
    are supplied may be substandard. Services that are
    provided may be substandard. Goods may not have been
    supplied at all. All these qua operational debts are matters
    to be proved in arbitration or in the courts of law. On the
    other hand, financial debts made to banks and financial
    institutions are well documented and defaults made are
    easily verifiable.
  7. Most importantly, financial creditors are, from the very
    beginning, involved with assessing the viability of the
    corporate debtor. They can, and therefore do, engage in
    restructuring of the loan as well as reorganisation of the
    corporate debtor’s business when there is financial stress,
    which are things operational creditors do not and cannot
    do. Thus, preserving the corporate debtor as a going
    concern, while ensuring maximum recovery for all creditors
    being the objective of the Code, financial creditors are
    clearly different from operational creditors and therefore,
    there is obviously an intelligible differentia between the two
    which has a direct relation to the objects sought to be
    achieved by the Code.
    xxx xxx xxx
    92
  8. Since the financial creditors are in the business of
    moneylending, banks and financial institutions are best
    equipped to assess viability and feasibility of the business
    of the corporate debtor. Even at the time of granting loans,
    these banks and financial institutions undertake a detailed
    market study which includes a techno-economic valuation
    report, evaluation of business, financial projection, etc.
    Since this detailed study has already been undertaken
    before sanctioning a loan, and since financial creditors
    have trained employees to assess viability and feasibility,
    they are in a good position to evaluate the contents of a
    resolution plan. On the other hand, operational creditors,
    who provide goods and services, are involved only in
    recovering amounts that are paid for such goods and
    services, and are typically unable to assess viability and
    feasibility of business. The BLRC Report, already quoted
    above, makes this abundantly clear.
    xxx xxx xxx
  9. Quite apart from this, the United Nations Commission
    on International Trade Law, in its Legislative Guide on
    Insolvency Law (the UNCITRAL Guidelines) recognises the
    importance of ensuring equitable treatment to similarly
    placed creditors and states as follows:
    “Ensuring equitable treatment of similarly situated creditors
  10. The objective of equitable treatment is based on the
    notion that, in collective proceedings, creditors with similar
    legal rights should be treated fairly, receiving a distribution
    on their claim in accordance with their relative ranking and
    interests. This key objective recognises that all creditors do
    not need to be treated identically, but in a manner that
    reflects the different bargains they have struck with the
    debtor. This is less relevant as a defining factor where
    there is no specific debt contract with the debtor, such as in
    the case of damage claimants (e.g. for environmental
    damage) and tax authorities. Even though the principle of
    equitable treatment may be modified by social policy on
    priorities and give way to the prerogatives pertaining to
    holders of claims or interests that arise, for example, by
    operation of law, it retains its significance
    by UNCITRAL Legislative Guide on Insolvency Law ensuring
    93
    that the priority accorded to the claims of a similar class
    affects all members of the class in the same manner. The
    policy of equitable treatment permeates many aspects of
    an insolvency law, including the application of the stay or
    suspension, provisions to set aside acts and transactions
    and recapture value for the insolvency estate, classification
    of claims, voting procedures in reorganisation and
    distribution mechanisms. An insolvency law should address
    problems of fraud and favouritism that may arise in cases
    of financial distress by providing, for example, that acts and
    transactions detrimental to equitable treatment of creditors
    can be avoided.”
  11. NCLAT has, while looking into viability and feasibility of
    resolution plans that are approved by the Committee of
    Creditors, always gone into whether operational creditors
    are given roughly the same treatment as financial creditors,
    and if they are not, such plans are either rejected or
    modified so that the operational creditors’ rights are
    safeguarded. It may be seen that a resolution plan cannot
    pass muster under Section 30(2)(b) read with Section 31
    unless a minimum payment is made to operational
    creditors, being not less than liquidation value. Further, on
    5-10-2018, Regulation 38 has been amended. Prior to the
    amendment, Regulation 38 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—
    (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 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 made by the financial creditors who voted in
    favour of the resolution plan.”
    Post amendment, Regulation 38 reads as follows:
    94
    “38. Mandatory contents of the resolution plan.—(1)
    The amount due to the operational creditors under a
    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 debtor.”
    The aforesaid Regulation further 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.”

(emphasis supplied)

  1. By reading paragraph 77 de hors the earlier paragraphs, the
    Appellate Tribunal has fallen into grave error. Paragraph 76 clearly
    refers to the UNCITRAL Legislative Guide which makes it clear
    beyond any doubt that equitable treatment is only of similarly situated
    creditors. This being so, the observation in paragraph 77 cannot be
    read to mean that financial and operational creditors must be paid the
    same amounts in any resolution plan before it can pass muster. On
    the contrary, paragraph 77 itself makes it clear that there is a
    difference in payment of the debts of financial and operational
    creditors, operational creditors having to receive a minimum payment,
    being not less than liquidation value, which does not apply to financial
    creditors. The amended Regulation 38 set out in paragraph 77 again
    does not lead to the conclusion that financial and operational
    creditors, or secured and unsecured creditors, must be paid the same
    95
    amounts, percentage wise, under the resolution plan before it can
    pass muster. Fair and equitable dealing of operational creditors’ rights
    under the said Regulation involves the resolution plan stating as to
    how it has dealt with the interests of operational creditors, which is
    not the same thing as saying that they must be paid the same amount
    of their debt proportionately. Also, the fact that the operational
    creditors are given priority in payment over all financial creditors does
    not lead to the conclusion that such payment must necessarily be the
    same recovery percentage as financial creditors. So long as the
    provisions of the Code and the Regulations have been met, it is the
    commercial wisdom of the requisite majority of the Committee of
    Creditors which is to negotiate and accept a resolution plan, which
    may involve differential payment to different classes of creditors,
    together with negotiating with a prospective resolution applicant for
    better or different terms which may also involve differences in
    distribution of amounts between different classes of creditors.
  2. Indeed, by vesting the Committee of Creditors with the
    discretion of accepting resolution plans only with financial creditors,
    operational creditors having no vote, the Code itself differentiates
    between the two types of creditors for the reasons given above.
    Further, as has been reflected in Swiss Ribbons (supra), most
    96
    financial creditors are secured creditors, whose security interests
    must be protected in order that they do not go ahead and realise their
    security in legal proceedings, but instead are incentivised to act within
    the framework of the Code as persons who will resolve stressed
    assets and bring a corporate debtor back to its feet. Shri Sibal’s
    argument that the expression “secured creditor” does not find
    mention in Chapter II of the Code, which deals with the resolution
    process, and is only found in Chapter III, which deals with liquidation,
    is for the reason that secured creditors as a class are subsumed in
    the class of financial creditors, as has been held in Swiss Ribbons
    (supra). Indeed, Regulation 13(1) of the 2016 Regulations mandates
    that when the resolution professional verifies claims, the security
    interest of secured creditors is also looked at and gets taken care of.
    Similarly, Regulation 36(2)(d) when it provides for a list of creditors
    and the amounts claimed by them in the information memorandum
    (which is to be submitted to prospective resolution applicants), also
    provides for the amount of claims admitted and security interest in
    respect of such claims. Under Regulation 39(4), the compliance
    certificate of the resolution professional as to the CIRP being
    successful is contained in Form H to the Regulations. This statutory
    form, in paragraphs 6 and 7, states as under:
    97
    “6. The Resolution Plan includes a statement under
    regulation 38(1A) of the CIRP Regulations as to how it has
    dealt with the interests of all stakeholders in compliance
    with the Code and regulations made thereunder.
  3. The amounts provided for the stakeholders under the
    Resolution Plan is as under:
    (Amount in Rs. Lakh)
    Sl.
    No.
    Category of
    Stakeholder
    Amount
    Claimed
    Amount
    Admitted
    Amount
    Provided
    under the
    Plan
    Amount
    Provided
    to the
    Amount
    Claimed
    (%)
    1 Dissenting
    Secured
    Financial
    Creditors
    2 Other Secured
    Financial
    Creditors
    3 Dissenting
    Unsecured
    Financial
    Creditors
    4 Other
    Unsecured
    Financial
    Creditors
    5 Operational
    Creditors
    Government
    Workmen
    Employees

    4 Other Debts
    and Dues
    Total
    Quite clearly, secured and unsecured financial creditors are
    differentiated when it comes to amounts to be paid under a resolution
    98
    plan, together with what dissenting secured or unsecured financial
    creditors are to be paid. And, most importantly, operational creditors
    are separately viewed from these secured and unsecured financial
    creditors in S.No.5 of paragraph 7 of statutory Form H. Thus, it can
    be seen that the Code and the Regulations, read as a whole, together
    with the observations of expert bodies and this Court’s judgment, all
    lead to the conclusion that the equality principle cannot be stretched
    to treating unequals equally, as that will destroy the very objective of
    the Code – to resolve stressed assets. Equitable treatment is to be
    accorded to each creditor depending upon the class to which it
    belongs: secured or unsecured, financial or operational.
  4. However, Shri Sibal relied strongly upon a judgment of this
    Court being Mihir R. Mafatlal v. Mafatlal Industries Ltd. (1997) 1
    SCC 579, and in particular paragraph 28 thereof, which stated as
    follows:
    “28. …On a conjoint reading of the relevant provisions of
    Sections 391 and 393 it becomes at once clear that the
    Company Court which is called upon to sanction such a
    scheme has not merely to go by the ipse dixit of the
    majority of the shareholders or creditors or their respective
    classes who might have voted in favour of the scheme by
    requisite majority but the Court has to consider the pros
    and cons of the scheme with a view to finding out whether
    the scheme is fair, just and reasonable and is not contrary
    to any provisions of law and it does not violate any public
    policy. This is implicit in the very concept of compromise or
    99
    arrangement which is required to receive the imprimatur of
    a court of law. No court of law would ever countenance any
    scheme of compromise or arrangement arrived at between
    the parties and which might be supported by the requisite
    majority if the Court finds that it is an unconscionable or an
    illegal scheme or is otherwise unfair or unjust to the class
    of shareholders or creditors for whom it is meant.
    Consequently it cannot be said that a Company Court
    before whom an application is moved for sanctioning such
    a scheme which might have got the requisite majority
    support of the creditors or members or any class of them
    for whom the scheme is mooted by the company
    concerned, has to act merely as a rubber stamp and must
    almost automatically put its seal of approval on such a
    scheme. It is trite to say that once the scheme gets
    sanctioned by the Court it would bind even the dissenting
    minority shareholders or creditors. Therefore, the fairness
    of the scheme qua them also has to be kept in view by the
    Company Court while putting its seal of approval on the
    scheme concerned placed for its sanction. It is, of course,
    true that so far as the Company Court is concerned as per
    the statutory provisions of Sections 391 and 393 of the Act
    the question of voidability of the scheme will have to be
    judged subject to the rider that a scheme sanctioned by
    majority will remain binding to a dissenting minority of
    creditors or members, as the case may be, even though
    they have not consented to such a scheme and to that
    extent absence of their consent will have no effect on the
    scheme. It can be postulated that even in case of such a
    scheme of compromise and arrangement put up for
    sanction of a Company Court it will have to be seen
    whether the proposed scheme is lawful and just and fair to
    the whole class of creditors or members including the
    dissenting minority to whom it is offered for approval and
    which has been approved by such class of persons with
    requisite majority vote.”
    The very next paragraph, however, states as follows:
    100
    “29. However further question remains whether the Court
    has jurisdiction like an appellate authority to minutely
    scrutinise the scheme and to arrive at an independent
    conclusion whether the scheme should be permitted to go
    through or not when the majority of the creditors or
    members or their respective classes have approved the
    scheme as required by Section 391 sub-section (2). On this
    aspect the nature of compromise or arrangement between
    the company and the creditors and members has to be
    kept in view. It is the commercial wisdom of the parties to
    the scheme who have taken an informed decision about
    the usefulness and propriety of the scheme by supporting it
    by the requisite majority vote that has to be kept in view by
    the Court. The Court certainly would not act as a court of
    appeal and sit in judgment over the informed view of the
    parties concerned to the compromise as the same would
    be in the realm of corporate and commercial wisdom of the
    parties concerned. The Court has neither the expertise nor
    the jurisdiction to delve deep into the commercial wisdom
    exercised by the creditors and members of the company
    who have ratified the Scheme by the requisite majority.
    Consequently the Company Court’s jurisdiction to that
    extent is peripheral and supervisory and not appellate. The
    Court acts like an umpire in a game of cricket who has to
    see that both the teams play their game according to the
    rules and do not overstep the limits. But subject to that how
    best the game is to be played is left to the players and not
    to the umpire.”
    In Mihir Mafatlal (supra), the Court was dealing with schemes of
    amalgamation under Section 391 of the Companies Act, 1956. Under
    Section 392 of the said Act, the High Court is vested with a
    supervisory jurisdiction, which includes the power to give directions
    and make modifications in such schemes, as it may consider
    necessary, for the proper working of the said Schemes. This power in
    Section 392 is conspicuous by its absence when it comes to the
    101
    Adjudicating Authority under the Code, whose jurisdiction is
    circumscribed by Section 30(2). It is the Committee of Creditors,
    under Section 30(4) read with Regulation 39(3), that is vested with
    the power to approve resolution plans and make modifications therein
    as the Committee deems fit. It is this vital difference between the
    jurisdiction of the High Court under Section 392 of the Companies
    Act, 1956 and the jurisdiction of the Adjudicating Authority under the
    Code that must be kept in mind when the Adjudicating Authority is to
    decide on whether a resolution plan passes muster under the Code.
    When this distinction is kept in mind, it is clear that there is no
    residual jurisdiction not to approve a resolution plan on the ground
    that it is unfair or unjust to a class of creditors, so long as the interest
    of each class has been looked into and taken care of. It is important
    to note that even under Sections 391 and 392 of the Companies Act,
    1956, ultimately it is the commercial wisdom of the parties to the
    scheme, reflected in the 75% majority vote, which then binds all
    shareholders and creditors. Even under Sections 391 and 392, the
    High Court cannot act as a court of appeal and sit in judgment over
    such commercial wisdom.
    The constitution of a sub-committee by the Committee of
    Creditors
    102
  5. A large part of Shri Sibal’s submission was centered around the
    fact that the Committee of Creditors delegated its functions to a subcommittee, which delegation is impermissible. As a result of this
    delegation, the sub-committee secretly made negotiations with
    ArcelorMittal, which secret negotiations then produced a wholly
    inequitable result in that Standard Chartered Bank, though a financial
    creditor, was only paid 1.74% of its admitted claim of INR 3487 crores
    as opposed to other financial creditors who were paid 74.8% of what
    was claimed by them.
  6. Under Section 21(8) of the Code, all decisions by the
    Committee of Creditors can be taken by a 51% majority vote, unless,
    a higher percentage is required under other specific provisions of the
    Code.
  7. In Pradyat Kumar Bhose v. The Hon’ble the Chief Justice of
    Calcutta High Court (1955) 2 SCR 1331 at page 1345-1346, this
    Court, when dealing with the Chief Justice of the High Court of
    Calcutta’s administrative powers held:
    “The further subordinate objections that have been raised
    remain to be considered. The first objection that has been
    urged is that even if the Chief Justice had the power to
    dismiss, he was not, in exercise of that power, competent
    to delegate to another Judge the enquiry into the charges
    but should have made the enquiry himself. This contention
    proceeds on a misapprehension of the nature of the power.
    103
    As pointed out in Barnard v. National Dock Labour
    Board [(1953) 2 QB 18, 40] at p. 40, it is true that “no
    judicial tribunal can delegate its functions unless it is
    enabled to do so expressly or by necessary implication”.
    But the exercise of the power to appoint or dismiss an
    officer is the exercise not of a judicial power but of an
    administrative power. It is nonetheless so, by reason of the
    fact that an opportunity to show cause and an enquiry
    simulating judicial standards have to precede the exercise
    thereof. It is well-recognised that a statutory functionary
    exercising such a power cannot be said to have delegated
    his functions merely by deputing a responsible and
    competent official to enquire and report. That is the
    ordinary mode of exercise of any administrative power.
    What cannot be delegated except where the law
    specifically so provides — is the ultimate responsibility for
    the exercise of such power. As pointed out by the House of
    Lords in Board of Education v. Rice [(1911) AC 179, 182] ,
    a functionary who has to decide an administrative matter,
    of the nature involved in this case, can obtain the material
    on which he is to act in such manner as may be feasible
    and convenient, provided only the affected party “has a fair
    opportunity to correct or contradict any relevant and
    prejudicial material”. The following passage from the
    speech of Lord Chancellor in Local Government
    Board v. Arlidge [(1915) AC 120, 133] is apposite and
    instructive:
    “My Lords, I concur in this view of the position of an
    administrative body to which the decision of a question in
    dispute between parties has been entrusted. The result of
    its inquiry must, as I have said, be taken, in the absence of
    directions in the statute to the contrary, to be intended to be
    reached by its ordinary procedure. In the case of the Local
    Government Board it is not doubtful what this procedure is.
    The Minister at the head of the Board is directly
    responsible to Parliament like other Ministers. He is
    responsible not only for what he himself does but for all
    that is done in his department. The volume of work
    entrusted to him is very great and he cannot do the great
    bulk of it himself. He is expected to obtain his materials
    vicariously through his officials, and he has discharged his
    duty if he sees that they obtain these materials for him
    properly. To try to extend his duty beyond this and to insist
    104
    that he and other members of the Board should do
    everything personally would be to impair his efficiency.
    Unlike a Judge in a Court he is not only at liberty but is
    compelled to rely on the assistance of his staff.”
    In view of the above clear statement of the law the
    objection to the validity of the dismissal on the ground that
    the delegation of the enquiry amounts to the delegation of
    the power itself is without any substance and must be
    rejected.”
    Likewise, in High Court of Judicature at Bombay through its
    Registrar v. Shirishkumar Rangrao Patil & Anr. (1997) 6 SCC 339,
    this Court, in dealing with the constitution of various committees for
    the administration of the High Court, when dealing with question of
    delegation held:
    “10. It would thus be settled law that the control of the
    subordinate judiciary under Article 235 is vested in the High
    Court. After the appointment of the judicial officers by the
    Governor, the power to transfer, maintain discipline and
    keep control over them vests in the High Court. The Chief
    Justice of the High Court is first among the Judges of the
    High Court. The action taken is by the High Court and not
    by the Chief Justice in his individual capacity, nor by the
    Committee of Judges. For the convenient transaction of
    administrative business in the Court, the Full Court of the
    Judges of the High Court generally passes a resolution
    authorising the Chief Justice to constitute various
    committees including the committee to deal with
    disciplinary matters pertaining to the subordinate judiciary
    or the ministerial staff working therein. Article 235,
    therefore, relates to the power of taking a decision by the
    High Court against a member of the subordinate judiciary.
    Such a decision either to hold an enquiry into the conduct
    of a judicial officer, subordinate or higher judiciary, or to
    have the enquiry conducted through a District or Additional
    District Judge etc. and to consider the report of the enquiry
    officer for taking further action is of the High Court. Equally,
    the decision to consider the report of the enquiry officer
    105
    and to take follow-up action and to make appropriate
    recommendation to the Disciplinary Committee or to the
    Governor, is entirely of the High Court which acts through
    the Committee of the Judges authorised by the Full Court.
    Once a resolution is passed by the Full Court of the High
    Court, there is no further necessity to refer the matter again
    to the Full Court while taking such procedural steps relating
    to control of the subordinate judiciary.”
  8. We find, that when it comes to the exercise of the Committee of
    Creditors’ powers on questions which have a vital bearing on the
    running of the business of the corporate debtor, Section 28(1)(h)
    provides that though these powers are administrative in nature, they
    shall not be delegated to any other person, meaning thereby, that the
    Committee of Creditors alone must take the decisions mentioned in
    Section 28 and not any person other than such Committee. When it
    comes to approving a resolution plan under Section 30(4), there is no
    doubt whatsoever that this power also cannot be delegated to any
    other body as it is the Committee of Creditors alone that has been
    vested with this important business decision which it must take by
    itself. However, this does not mean that sub-committees cannot be
    appointed for the purpose of negotiating with resolution applicants, or
    for the purpose of performing other ministerial or administrative acts,
    provided such acts are in the ultimate analysis approved and ratified
    by the Committee of Creditors. We find, having gone through the
    minutes of all the important creditors’ meetings that were held, that
    106
    every single administrative decision qua approving and administering
    the resolution plan submitted by ArcelorMittal was in fact done by the
    requisite majority of the Committee of Creditors itself, the subcommittee having been used only for purposes of initiating
    proceedings and negotiating with ArcelorMittal, which ultimately
    culminated in the resolution plan as finally negotiated, being passed
    by the requisite majority of creditors on 23.10.2018. In point of fact,
    Standard Chartered Bank voted in favour of the constitution of a subcommittee on the 12th committee of creditors meeting of 02.05.2018,
    as also, in favour of decisions of the Committee of Creditors finalizing
    drafts of sub-committees on eligibility of resolution applicants at the
    13th Committee of Creditors meeting on 05.05.2018. Also, as a
    matter of fact, on 31.05.2018, at the 16th Committee of Creditors
    meeting, a request was made by Standard Chartered Bank to be a
    member of the sub-committee, which request was later withdrawn.
    We also find that in the authorisation to the sub-committee to
    negotiate with ArcelorMittal, mooted at the 20th Committee of
    Creditors meeting on 19.10.2018, a request was made by Standard
    Chartered Bank for inclusion in the said sub-committee. However,
    Standard Chartered Bank did not agree to put the reconstitution of
    the sub-committee to vote by the Committee of Creditors. Given
    these facts, we find, therefore, that it is only when Standard
    107
    Chartered Bank found that things were going against it that it started
    raising objections on the technical plea that sub-committees cannot
    be constituted under the Code. This is not a bonafide plea. For all
    these reasons, this objection of Standard Chartered Bank is also
    rejected.
    Extinguishment of Personal Guarantees and Undecided Claims
  9. Shri Gopal Subramanium and Shri Rakesh Dwivedi have also
    appealed against the extinguishment of the rights of creditors against
    guarantees that were extended by the promoters/promoter group of
    the corporate debtor. According to them, this was done by a side wind
    by the Appellate Tribunal without any reasons for the same.
  10. Shri Prashant Ruia a promoter/director of the corporate debtor
    in his personal guarantee dated 28.09.2013, specifically stated as
    follows:
    “7. The obligations of the Guarantor under this Guarantee
    shall not be affected by any act, omission, matter or thing
    that, but for this Guarantee, would reduce, release or
    prejudice any of its obligations under this Guarantee
    (without limitation and whether or not known to it or any
    Secured Party) including :
    xxx xxx xxx
    (g) any insolvency or similar proceedings.”
    108
    Also, under the caption “terms of settlement”, the final resolution plan
    dated 02.04.2018, as approved on 23.10.2018, specifically provided:
    “Financial Creditors:
    Pursuant to the approval of this Resolution Plan by the
    Adjudicating Authority, each of the Financial Creditors shall
    be deemed to have agreed and acknowledged the
    following terms:
     The payment to the Financial creditors in accordance
    with this Resolution Plan shall be treated as full and final
    payment of all outstanding dues of the Corporate Debtor to
    each of the Financial Creditors as of the Effective Date,
    and all agreements and arrangements entered into by or in
    favour of each of the Financial Creditors, including but not
    limited to loan agreements and security agreements (other
    than corporate or personal guarantees provided in relation
    to the Corporate Debtor by the Existing Promoter Group or
    their respective affiliates) shall be deemed to have been
    (i) assigned / novated to the Resolution applicant, or any
    Person nominated by the Resolution applicant, with effect
    from the effective Date, with no rights subsisting or
    accruing to the Financial Creditors for the period prior to
    such assignment or novation; and (ii) to the extent not
    legally capable of assigned or novated- terminated with
    effect from the effective Date, with no rights accruing or
    subsisting to the Financial Creditors for the period prior to
    termination.
     In relation to the loan and financial assistance provided to
    the Corporate Debtor; each of the Financial Creditors, as
    the case maybe, shall:
  • Assign/ novate all security given (including but not limited
    to Encumbrance over assets of the Corporate Debtor,
    pledge of shares of the Corporate Debtor (other than
    corporate guarantees and personal guarantees) related in
    any manner to the Corporate Debtor) to the Resolution
    Applicant and /or its Connected Persons, and /or banks or
    financial institutions designated by the Resolution Applicant
    109
    in this regard, pursuant to the Acquisition Structure, with
    effect from the Effective Date;
  • Issue such letters and communications, and take such
    other actions, as may be required or deemed necessary for
    the release, assignment or novation of (i) the Encumbrance
    over the assets of the Corporate Debtor; and (ii) the pledge
    over the shares of the Corporate Debtor; within 5(five)
    Business Days from the Effective Date; and
  • Be deemed to have waived all claims and dues (including
    interest and penalty, if any) from the Corporate Debtor
    arising on and from the insolvency Commencement Date,
    until the effective Date.”
  1. Shri Rohatgi, learned senior advocate appearing on behalf of
    Shri Prashant Ruia, also pointed out Section XIII (1)(g) of the
    resolution plan dated 23.10.18, in which it is stated as follows:
    “Upon the approval of the Resolution Plan by the
    Adjudicating Authority in relation to guarantees provided for
    and on behalf of, and in order to secure the financial
    assistance availed by the Corporate Debtor, which have
    been invoked prior to the Effective Date, claims of the
    guarantor on account of subrogation, if any, under any
    such guarantee shall be deemed to have been abated,
    released, discharged and extinguished.
    It is hereby clarified that, the aforementioned clause shall
    not apply in any manner which may extinguish/affect the
    rights of the Financial Creditors to enforce the corporate
    guarantees and personal guarantees issued for and on
    behalf of the Corporate Debtor by Existing Promoter Group
    or their respective affiliates, which guarantees shall
    continue to be retained by the Financial Creditors and shall
    continue to be enforceable by them.”
    (emphasis supplied)
    We were also informed by the learned senior counsel that the
    personal guarantees of the promoter group have been invoked and
    110
    legal proceedings in respect thereof are pending. It has been pointed
    out to us that Shri Prashant Ruia and other members of the promoter
    group, who are guarantors, are not parties to the resolution plan
    submitted by ArcelorMittal and hence, the resolution plan cannot bind
    them to take away rights of subrogation, which they may have if they
    are ordered to pay amounts guaranteed by them in the pending legal
    proceedings.
  2. Section 31(1) of the Code makes it clear that once a resolution
    plan is approved by the Committee of Creditors it shall be binding on
    all stakeholders, including guarantors. This is for the reason that this
    provision ensures that the successful resolution applicant starts
    running the business of the corporate debtor on a fresh slate as it
    were. In State Bank of India v. V. Ramakrishnan, 2018 (9) SCALE
    597, this Court relying upon Section 31 of the Code has held:
    “22. Section 31 of the Act was also strongly relied upon by
    the Respondents. This Section only states that once a
    Resolution Plan, as approved by the Committee of
    Creditors, takes effect, it shall be binding on the corporate
    debtor as well as the guarantor. This is for the reason that
    otherwise, Under Section 133 of the Indian Contract Act,
    1872, any change made to the debt owed by the corporate
    debtor, without the surety’s consent, would relieve the
    guarantor from payment. Section 31(1), in fact, makes it
    clear that the guarantor cannot escape payment as the
    Resolution Plan, which has been approved, may well
    include provisions as to payments to be made by such
    guarantor. This is perhaps the reason that Annexure VI(e)
    to Form 6 contained in the Rules and Regulation 36(2)
    111
    referred to above, require information as to personal
    guarantees that have been given in relation to the debts of
    the corporate debtor. Far from supporting the stand of the
    Respondents, it is clear that in point of fact, Section 31 is
    one more factor in favour of a personal guarantor having to
    pay for debts due without any moratorium applying to save
    him.”
    Following this judgment, it is difficult to accept Shri Rohatgi’s
    argument that that part of the resolution plan which states that the
    claims of the guarantor on account of subrogation shall be
    extinguished, cannot be applied to the guarantees furnished by the
    erstwhile directors of the corporate debtor. So far as the present case
    is concerned, we hasten to add that we are saying nothing which may
    affect the pending litigation on account of invocation of these
    guarantees. However, the NCLAT judgment being contrary to Section
    31(1) of the Code and this Court’s judgment in State Bank of India
    (supra), is set aside.
  3. For the same reason, the impugned NCLAT judgment in holding
    that claims that may exist apart from those decided on merits by the
    resolution professional and by the Adjudicating Authority/Appellate
    Tribunal can now be decided by an appropriate forum in terms of
    Section 60(6) of the Code, also militates against the rationale of
    Section 31 of the Code. A successful resolution applicant cannot
    suddenly be faced with “undecided” claims after the resolution plan
    112
    submitted by him has been accepted as this would amount to a hydra
    head popping up which would throw into uncertainty amounts payable
    by a prospective resolution applicant who successfully take over the
    business of the corporate debtor. All claims must be submitted to and
    decided by the resolution professional so that a prospective
    resolution applicant knows exactly what has to be paid in order that it
    may then take over and run the business of the corporate debtor. This
    the successful resolution applicant does on a fresh slate, as has been
    pointed out by us hereinabove. For these reasons, the NCLAT
    judgment must also be set aside on this count.
    Utilisation of profits of the corporate debtor during CIRP to pay
    off creditors
  4. The RFP issued in terms of Section 25 of the Code and
    consented to by ArcelorMittal and the Committee of Creditors had
    provided that distribution of profits made during the corporate
    insolvency process will not go towards payment of debts of any
    creditor – see Clause 7 of the first addendum to the RFP dated
    08.02.2018. On this short ground, this part of the judgment of the
    NCLAT is also incorrect.
    Constitutional Validity of Section 4 and 6 of the Amending Act,
    2019
    113
  5. In Swiss Ribbons (supra) this Court was at pains to point out,
    referring, inter alia, to various American decisions in paras 17 to 24,
    that the legislature must be given free play in the joints when it comes
    to economic legislation. Apart from the presumption of
    constitutionality which arises in such cases, the legislative judgment
    in economic choices must be given a certain degree of deference by
    the courts. In para 120 of the said judgment, this Court held:
    “120. The Insolvency Code is a legislation which deals with
    economic matters and, in the larger sense, deals with the
    economy of the country as a whole. Earlier experiments, as
    we have seen, in terms of legislations having failed, “trial”
    having led to repeated “errors”, ultimately led to the
    enactment of the Code. The experiment contained in the
    Code, judged by the generality of its provisions and not by
    so-called crudities and inequities that have been pointed
    out by the petitioners, passes constitutional muster. To stay
    experimentation in things economic is a grave
    responsibility, and denial of the right to experiment is
    fraught with serious consequences to the nation. We have
    also seen that the working of the Code is being monitored
    by the Central Government by Expert Committees that
    have been set up in this behalf. Amendments have been
    made in the short period in which the Code has operated,
    both to the Code itself as well as to subordinate legislation
    made under it. This process is an ongoing process which
    involves all stakeholders, including the petitioners.”
    It is in this background that the constitutional challenge to the
    Amending Act of 2019 will have to be decided.
  6. Closely on the heels of the impugned NCLAT judgment which
    was delivered on 04.07.2019, a representation dated 17.07.2019 was
    written by the Deputy Secretary General, FICCI to the Secretary,
    114
    Ministry of Corporate Affairs, pointing out the flaws of the NCLAT
    judgment and suggesting that the Government may consider
    amendment of the Code to reinstate the law as it was and should be.
    This representation stated:
    “A case in point is the recent NCLAT judgment which, in
    effect, places Secured and unsecured Financial Creditors
    as well as Financial and Operational Creditors on an equal
    footing, thus virtually erasing the distinction specifically
    carved between these two classes of creditors by the
    provisions of the Code. It may be noted that the
    consequences of this order stretch beyond this particular
    case.
    The doctrine that secured creditors shall rank ahead of
    unsecured creditors is a core principle of banking. It allows
    banks to lend to companies and individuals at lower rates
    of interest in a secured lending because they know that
    their loan is secured and in the eventuality of a default,
    their losses would be mitigated. By virtue of this order, the
    borrowing rates for all classes would go up in the future
    because banks can’t be sure of protecting their losses. The
    fundamental principles of credit analysis and rating no
    longer hold true. This would also result in unjust enrichment
    for some creditors who, knowing that they don’t have
    benefit of the security, lent at a much higher rate as
    compared to the secured lenders. Besides earning far
    more money than secured creditors, due to higher interest
    rate during the pre insolvency stage they now have the
    benefit of higher share in the plan value, at the expense of
    secured creditors. In fact the ruling puts in question the
    very concept of security – what is the use of a
    charge/security if it is meaningless in insolvency? Even
    other statutes, including the Companies Act, 2013 clearly
    lay down a distinction between secured and unsecured
    creditors and if both are treated at par it will be a huge
    disincentive for secured creditors…In fact, in its judgement
    on the constitutionality of the IBC earlier this year, the
    Supreme Court had justified the difference between
    115
    financial and operational creditors. The NCLAT order
    effectively negates that distinction, which is against the
    fundamental theme of the IBC. If the distinction between
    secured and unsecured financial creditors and between
    financial and operational creditors is not maintained,
    bankers would be reluctant to use the IBC provisions for
    resolution of stressed assets, and would prefer for the
    companies to enter liquidation, which is certainly not the
    intent of the Code. The decision may also open the floodgates for reopening of previously concluded cases as well
    as filing of fresh applications and appeals by operational
    creditors, alleging discrimination and seeking parity with
    financial creditors and also by unsecured financial
    creditors, alleging discrimination and seeking parity with
    secured financial creditors.
    xxx xxx xxx
    We would like to draw your attention to Sections 30 and 31
    of the Code which contain detailed provisions on
    submission and approval of the resolution plan. As per
    section 31(1), once the Adjudicating Authority is satisfied
    that the resolution plan as approved by the committee of
    creditors meets the requirements of section 30, it shall
    approve the resolution plan. The Insolvency and
    Bankruptcy Board of India has also prescribed rules and
    regulations on mandatory requirements of resolution plan.
    The statute thus clearly empowers the committee of
    creditors to decide the distribution of funds. It also
    recognizes that as long as the resolution plan is in
    conformity with law, the Adjudication Authority must
    approve the resolution plan, as is evidenced by the usage
    of the word ‘shall’ in section 31(1). In K. Sashidhar case the
    Supreme Court has clearly held that commercial decisions
    of the committee of creditors are not open to judicial
    review. We would like to clarify that the fundamental
    principle that there should be no discrimination between
    similarly situated creditors is not being questioned by the
    industry. The question is whether we can redefine class to
    mean all financial creditors irrespective of inter-creditor
    arrangement or their security. Such a finding is a complete
    rewrite of laws, practices and the agreement and bargain of
    116
    parties at the time of financing (or when goods or services
    were provided).
    We therefore strongly suggest that the Government may
    consider amendment of the Code to expressly clarify the
    distinction between secured and unsecured creditors and
    between financial and operational creditors. Also, decisions
    of resolution applicant, as accepted by the committee of
    creditors should be considered final unless they are found
    to be contrary to law. This would avoid any confusion; be in
    line with the global practices and held India retain its status
    of preferred investment destination.”
  7. Pursuant to this and representations from Banks and industry,
    the Amending Act of 2019 was then made. Sections 4 and 6 of the
    Amending Act of 2019 read as under:
    “4. Amendment of section 12.
    In section 12 of the principal Act, in sub-section (3), after
    the proviso, the following provisos shall be inserted,
    namely:––
    “Provided further that the corporate insolvency resolution
    process shall mandatorily be completed within a period of
    three hundred and thirty days from the insolvency
    commencement date, including any extension of the period
    of corporate insolvency resolution process granted under
    this section and the time taken in legal proceedings in
    relation to such resolution process of the corporate debtor:
    Provided also that where the insolvency resolution process
    of a corporate debtor is pending and has not been
    completed within the period referred to in the second
    proviso, such resolution process shall be completed within
    a period of ninety days from the date of commencement of
    the Insolvency and Bankruptcy Code (Amendment) Act,
    2019.”
    xxx xxx xxx
  8. Amendment to section 30.
    In section 30 of the principal Act,––
    117
    (a) in sub-section (2), for clause (b), the following shall be
    substituted, namely:—
    “(b) provides for the payment of debts of operational
    creditors in such manner as may be specified by the
    Board which shall not be less than––
    (i) the amount to be paid to such creditors in the
    event of a liquidation of the corporate debtor
    under section 53; or
    (ii) the amount that would have been paid to such
    creditors, if the amount to be distributed under the
    resolution plan had been distributed in
    accordance with the order of priority in subsection (1) of section 53,
    whichever is higher, and provides for the payment of
    debts of financial creditors, who do not vote in favour
    of the resolution plan, in such manner as may be
    specified by the Board, which shall not be less than
    the amount to be paid to such creditors in accordance
    with sub-section (1) of section 53 in the event of a
    liquidation of the corporate debtor.
    Explanation 1.––For the removal of doubts, it is hereby
    clarified that a distribution in accordance with the
    provisions of this clause shall be fair and equitable to
    such creditors.
    Explanation 2.––For the purposes of this clause, it is
    hereby declared that on and from the date of
    commencement of the Insolvency and Bankruptcy
    Code (Amendment) Act, 2019, the provisions of this
    clause shall also apply to the corporate insolvency
    resolution process of a corporate debtor––
    (i) where a resolution plan has not been approved
    or rejected by the Adjudicating Authority;
    (ii) where an appeal has been preferred under
    section 61 or section 62 or such an appeal is
    not time barred under any provision of law for the
    time being in force; or
    (iii) where a legal proceeding has been initiated in
    any court against the decision of the Adjudicating
    Authority in respect of a resolution plan;”
    118
    b) in sub-section (4), after the words “feasibility and
    viability,”, the words, brackets and figures “the manner of
    distribution proposed, which may take into account the
    order of priority amongst creditors as laid down in subsection (1) of section 53, including the priority and value of
    the security interest of a secured creditor” shall be
    inserted.”
  9. The frontal attack of Shri Sibal on Sections 4 and 6 of the
    Amending Act of 2019 is that it was tailor-made to do away with the
    judgment of the NCLAT in this very matter. This being so, such
    legislation would be clearly outside the bounds of the legislature as
    the legislature cannot interfere with a particular judgment and set it
    aside.
  10. There is no doubt that the Amending Act of 2019 consists of
    several Sections which have been enacted/amended as difficulties
    have arisen in the working of the Code. While it is true that it may
    well be that the law laid down by the NCLAT in this very case
    forms the basis for some of these amendments, it cannot be said
    that the legislature has directly set aside the judgment of the
    NCLAT. Since an appeal against the judgment of the NCLAT lies to
    the Supreme Court, the legislature is well within its bounds to lay
    down laws of general application to all persons affected, bearing in
    mind what it considers to be a curing of a defective reading of the
    law by an Appellate Tribunal. There can be no doubt whatsoever
    119
    that apart from the present case the amendments made by the
    Amending Act of 2019 apply down the board to all persons who are
    affected by its provisions. Also, it is settled law that bad faith, in the
    sense of improper motives, cannot be ascribed to a legislature
    making laws. This is settled law ever since the celebrated
    judgment of B.K. Mukherjea,J. In K.C. Gajapati Narayan Deo and
    Others v. State of Orissa 1954 SCR 1. This was felicitously laid
    down as follows:
    “…As the question is of some importance and is likely to
    be debated in similar cases in future, it would be
    necessary to examine the precise scope and meaning of
    what is known ordinarily as the doctrine of “colourable
    legislation”.
    It may be made clear at the outset that the doctrine of
    colourable legislation does not involve any question of
    bona fides or mala fides on the part of the legislature.
    The whole doctrine resolves itself into the question of
    competency of a particular legislature to enact a
    particular law. If the legislature is competent to pass a
    particular law, the motives which impelled it to act are
    really irrelevant. On the other hand, if the legislature
    lacks competency, the question of motive does not arise
    at all. Whether a statute is constitutional or not is thus
    always a question of power [ Vide Cooley’s
    Constitutional Limitations, Vol 1 p 379] . A distinction,
    however, exists between a legislature which is legally
    omnipotent like the British Parliament and the laws
    promulgated by it which could not be challenged on the
    ground of incompetence, and a legislature which enjoys
    only a limited or a qualified jurisdiction. If the
    Constitution of a State distributes the legislative powers
    amongst different bodies, which have to act within their
    respective spheres marked out by specific legislative
    entries, or if there are limitations on the legislative
    120
    authority in the shape of fundamental rights, questions
    do arise as to whether the legislature in a particular case
    has or has not, in respect to the subject-matter of the
    statute or in the method of enacting it, transgressed the
    limits of its constitutional powers.”
    Likewise, a 7-Judge Bench in STO v. Ajit Mills Ltd. (1977) 4 SCC
    98, has also clearly stated as follows:
    “16. Before scanning the decisions to discover the
    principle laid down therein, we may dispose of the
    contention which has appealed to the High Court based
    on “colourable device’. Certainly, this is a malignant
    expression and when flung with fatal effect at a
    representative instrumentality like the legislature,
    deserves serious reflection. If, forgetting comity, the
    Legislative wing charges the Judicature wing with
    “colourable” judgments, it will be intolerably subversive
    of the rule of law. Therefore, we too must restrain
    ourselves from making this charge except in absolutely
    plain cases and pause to understand the import of the
    doctrine of colourable exercise of public power,
    especially legislative power. In this branch of law,
    “colourable” is not “tainted with bad faith or evil motive’ ;
    it is not pejorative or crooked. Conceptually,
    “colourability” is bound up with incompetency. “Colour’,
    according to Black’s Legal Dictionary, is “an appearance,
    semblance or simulacrum, as distinguished from that
    which is real … a deceptive appearance … a lack of
    reality’. A thing is colourable which is, in appearance
    only and not in reality, what it purports to be. In Indian
    terms, it is maya. In the jurisprudence of power,
    colourable exercise of or fraud on legislative power or,
    more frightfully, fraud on the Constitution, are
    expressions which merely mean that the legislature is
    incompetent to enact a particular law although the label
    of competency is stuck on it, and then it is colourable
    legislation. It is very important to notice that if the
    legislature is competent to pass the particular law, the
    motives which impel it to pass the law are really
    irrelevant. To put it more relevantly to the case on hand,
    if a legislation, apparently enacted under one Entry in
    121
    the List, falls in plain truth and fact, within the content,
    not of that Entry but of one assigned to another
    legislature, it can be struck down as colourable even if
    the motive were most commendable. In other words, the
    letter of the law notwithstanding, what is the pith and
    substance of the Act? Does it fall within any entry
    assigned to that legislature in pith and substance, or as
    covered by the ancillary powers implied in that Entry?
    Can the legislation be read down reasonably to bring it
    within the legislature’s constitutional powers? If these
    questions can be answered affirmatively, the law is valid.
    Malice or motive is beside the point, and it is not
    permissible to suggest parliamentary incompetence on
    the score of mala fides.”
    It is clear therefore for all these reasons that Sections 4 and 6 of the
    Amending Act of 2019 cannot be struck down on this score.
  11. So far as Section 4 is concerned, it is clear that the original
    timelines in which a CIRP must be completed have now been
    extended to 330 days, which is 60 days more than 180 plus 90 days
    (which is equal to 270 days). But this 330-day period includes the
    time taken in legal proceedings in relation to such resolution process
    of the corporate debtor. This provision is to get over what is stated in
    the judgment in ArcelorMittal India (supra) at paragraph 86, that the
    time taken in legal proceedings in relation to the corporate resolution
    process must be excluded from the timeline mentioned in Section 12.
    Secondly, the third proviso added to the Section also mandates that
    where the period of 330 days is over on the date of commencement
    of the Amending Act of 2019, a further grace period of 90 days from
    122
    such date is given, within which such process shall either be
    completed or the corporate debtor be sent into liquidation.
  12. The raison d’être for this provision comes from the experience
    that has been plaguing the legislature ever since SICA was
    promulgated. The problems of SICA and other successor enactments
    was stated in graphic detail in Madras Petrochem Limited v. BIFR
    (2016) 4 SCC 1 at paragraphs 17 to 23. It will be seen from these
    paragraphs that though SICA, the Recovery of Debts Act of 1993 and
    the Securitisation and Reconstruction of Financial Assets and
    Enforcement of Securities Interest Act, 2002 (hereinafter referred to
    as “SARFAESI Act”) all provided for expeditious determination and
    timely detection of sickness in industrial companies, yet, legal
    proceedings under the same dragged on for years as a result of
    which all these statutory measures proved to be abject failures in
    resolving stressed assets. It is for this reason that the BLRC Report
    of 2015 stated:
    “In limited circumstances, if 75 % of the creditors
    committee decides that the complexity of a case requires
    more time for a resolution plan to be finalised, a onetime
    extension of the 180 day period for up to 90 days is
    possible with the prior approval of the adjudicator. This is
    starkly different from certain present arrangements which
    permit the debtor / promoter to seek extensions beyond
    any limit.
    This approach has many strengths:
    123
    • Asset stripping by promoters is controlled after and before
    default.
    • The promoters can make a proposal that involves buying
    back the company for a certain price, alongside a certain
    debt restructuring.
    • Others in the economy can make proposals to buy the
    company at a certain price, alongside a certain debt
    restructuring.
    • All parties knows that if no deal is struck within the
    stipulated period, the company will go into liquidation. This
    will help avoid delaying tactics. The inability of promoters to
    steal from the company, owing to the supervision of the IP,
    also helps reduce the incentive to have a slow lingering
    death.
    • The role of the adjudicator will be on process issues: To
    ensure that all financial creditors were indeed on the
    creditors committee, and that 75% of the creditors do
    indeed support the resolution plan.
    xxx xxx xxx
    Speed is of essence
    Speed is of essence for the working of the bankruptcy
    code, for two reasons. First, while the „calm period can ‟
    help keep an organisation afloat, without the full clarity of
    ownership and control, significant decisions cannot be
    made. Without effective leadership, the firm will tend to
    atrophy and fail. The longer the delay, the more likely it is
    that liquidation will be the only answer. Second, the
    liquidation value tends to go down with time as many
    assets suffer from a high economic rate of depreciation.
    From the viewpoint of creditors, a good realisation can
    generally be obtained if the firm is sold as a going concern.
    Hence, when delays induce liquidation, there is value
    destruction. Further, even in liquidation, the realisation is
    lower when there are delays. Hence, delays cause value
    destruction. Thus, achieving a high recovery rate is
    primarily about identifying and combating the sources of
    delay. This same idea is found in FSLRC’s treatment of the
    failure of financial firms. The most important objective in
    124
    designing a legal framework for dealing with firm failure is
    the need for speed.
    Identifying and addressing the sources of delay
    Before the IRP can commence, all parties need an
    accurate and undisputed set of facts about existing credit,
    collateral that has been pledged, etc. Under the present
    arrangements, considerable time can be lost before all
    parties obtain this information. Disputes about these facts
    can take up years to resolve in court. The objective of an
    IRP that is completed in no more than 180 days can be lost
    owing to these problems.
    Hence, the Committee envisions a competitive industry of
    „information utilities who hold an array of information ‟
    about all firms at all times. When the IRP commences,
    within less than a day, undisputed and complete
    information would become available to all persons involved
    in the IRP and thus address this source of delay.
    The second important source of delays lies in the
    adjudicatory mechanisms. In order to address this, the
    Committee recommends that the National Company Law
    Tribunals (for corporate debtors) and Debt Recovery
    Tribunals (for individuals and partnership firms) be provided
    with all the necessary resources to help them in realising
    the objectives of the Code.
    xxx xxx xxx
    Conclusion
    The failure of some business plans is integral to the
    process of the market economy. When business failure
    takes place, the best outcome for society is to have a rapid
    renegotiation between the financiers, to finance the going
    concern using a new arrangement of liabilities and with a
    new management team. If this cannot be done, the best
    outcome for society is a rapid liquidation. When such
    arrangements can be put into place, the market process of
    creative destruction will work smoothly, with greater
    competitive vigor and greater competition.”
    125
  13. The speech of the Hon’ble Minister on the floor of the House of
    the Rajya Sabha also reflected the fact that with the passage of time
    the original intent of quick resolution of stressed assets is getting
    diluted. It is therefore essential to have time-bound decisions to
    reinstate this legislative intent. It was also pointed out on the floor of
    the House that the experience in the working of the Code has not
    been encouraging. The Minister in her speech to the Rajya Sabha
    gives the following facts and figures:
    “Now, regarding the Corporate Insolvency Resolution
    Process (CIRP), under the Code, I want to give you data
    again as of 30th June, 2019. First, I will talk about the
    status of CIRPs. Number of admitted cases is 2162;
    number of cases closed on appeal, which I read out about,
    is 174; number of cases closed by withdrawal under
    Section 12A, is 101, I have given you a slightly later data;
    number of cases closed by resolution is 120; closed by
    liquidation, 475; and ongoing CIRPs are 1292. So, now, I
    would like to mention the number of days of waiting. I
    would like to mention here the details of the ongoing
    CIRPs, along with the timelines. Ongoing CIRPs are 1,292,
    the figure just now I gave you. Over 330 days, 335 cases;
    over 270 days, 445 cases; over 180 days and less than
    270 days, 221 cases; over 90 days but less than 180 days,
    349 cases; less than 90 days, 277 cases. The number of
    days’ pending includes time, if any, excluded by the
    tribunals. So, that gives you a picture on what is the kind of
    wait and, therefore, why we want to bring the Amendments
    for this speeding up.”
    Mrs. Madhvi Divan also pointed out that the Hon’ble Minister’s
    speech had also adverted to the strengthening of the NCLT as
    follows:
    126
    “In view of the increasing number of cases, the
    Government has increased the number of benches of
    NCLT from 10 to 15, during just the last one year. In one
    year, we have increased it from 10 to 15. The number of
    members has also been increased in a phased manner.
    Recently, 26 new members have joined bringing the total
    number of members to 52. Sir, more than one court has
    been operationalised in the benches where a large number
    of cases are pending, such as, in Mumbai, Delhi, Chennai
    and Kolkata. The projects like e-governance and e-courts
    have also been implemented for faster and speedier
    disposal of the cases.”
  14. Shri Sibal vehemently objected to any reliance on the speech of
    the Minister and cited K.P. Varghese v. ITO (1982) 1 SCR 629 and
    K.S. Paripoornan v. State of Kerala (1994) 5 SCC 593. In Varghese
    (supra) this Court held, at page 645, as follows:
    “…Now it is true that the speeches made by the Members
    of the Legislature on the floor of the House when a Bill for
    enacting a statutory provision is being debated are
    inadmissible for the purpose of interpreting the statutory
    provision but the speech made by the Mover of the Bill
    explaining the reason for the introduction of the Bill can
    certainly be referred to for the purpose of ascertaining the
    mischief sought to be remedied by the legislation and the
    object and purpose for which the legislation is enacted.
    This is in accord with the recent trend in juristic thought not
    only in western countries but also in India that
    interpretation of a statute being an exercise in the
    ascertainment of meaning, everything which is logically
    relevant should be admissible. In fact there are at least
    three decisions of this Court, one in Loka Shikshana
    Trust v. CIT [(1976) 1 SCC 254 : 1976 SCC (Tax) 14 : 101
    ITR 234 : 1976 LR 1] , the other in Indian Chamber of
    Commerce v. Commissioner of Income Tax [(1976) 1 SCC
    324 : 1976 SCC (Tax) 41 : 101 ITR 796 : 1976 Tax LR 210]
    and the third in Additional Commissioner of Income
    Tax v. Surat Art Silk Cloth Manufacturers’
    Association [(1980) 2 SCC 31 : 1980 SCC (Tax) 170 : 121
    127
    ITR 1] where the speech made by the Finance Minister
    while introducing the exclusionary clause in Section 2,
    clause (15) of the Act was relied upon by the Court for the
    purpose of ascertaining what was the reason for
    introducing that clause.”
    In Paripoornan (supra), the Court held as follows:
    “77. In support of the construction placed on Section 23(1-
    A) of the principal Act and Section 30(1) of the amending
    Act in Zora Singh [(1992) 1 SCC 673] the learned counsel
    for the claimants have referred to the Statement of Objects
    and Reasons appended to the Bill in 1982 as well as the
    Bill of 1984 and have submitted that the said Statement of
    Objects and Reasons show that the object underlying the
    enactment of Section 23(1-A) was to remove the hardship
    to the affected parties on account of pendency of
    acquisition proceedings for a long time which renders
    unrealistic the amounts of compensation offered to them.
    Our attention has also been invited to the speeches made
    by members at the time when the Bill was considered and
    was adopted by Parliament. It has been urged that a
    construction which advances the said object must be
    adopted. We are unable to accept this contention. As
    regards the Statement of Objects and Reasons appended
    to the Bill the law is well settled that the same cannot be
    used except for the limited purpose of understanding the
    background and the state of affairs leading to the
    legislation but it cannot be used as an aid to the
    construction of the statute. (See Aswini Kumar
    Ghosh v. Arabinda Bose [1953 SCR 1, 28 : AIR 1952 SC
    369] ; State of W.B. v. Subodh Gopal Bose [1954 SCR 587,
    628 : AIR 1954 SC 92] per Das, J.; State of W.B. v. Union
    of India [(1964) 1 SCR 371, 383 : AIR 1963 SC 1241] .)
    Similarly, with regard to speeches made by the members in
    the House at the time of consideration of the Bill it has
    been held that they are not admissible as extrinsic aids to
    the interpretation of the statutory provisions though the
    speech of the mover of the Bill may be referred to for the
    purpose of finding out the object intended to be achieved
    by the Bill. (See State of Travancore-Cochin v. Bombay Co.
    Ltd. [1952 SCR 1112 : AIR 1952 SC 366] and Aswini
    Kumar v. Arabinda Bose [1953 SCR 1, 28 : AIR 1952 SC
    128
    369] .) On a perusal of the Bills of 1982 and 1984 we find
    that they did not contain the provisions found in Section
    23(1-A) of the principal Act and Section 30(1) of the
    amending Act. These provisions were inserted when the
    1984 Bill was under consideration before Parliament. The
    Statement of Objects and Reasons does not, therefore,
    throw any light on the circumstances in which these
    provisions were introduced.”
    As the speech of the Hon’ble Minister on the floor of the House only
    indicates the object for which the amendment was made and as it
    contains certain data which it is useful to advert to, we take aid from
    the speech not in order to construe the amended Section 12, but only
    in order to explain why the Amending Act of 2019 was brought about.
  15. Given the fact that timely resolution of stressed assets is a key
    factor in the successful working of the Code, the only real argument
    against the amendment is that the time taken in legal proceedings
    cannot ever be put against the parties before the NCLT and NCLAT
    based upon a Latin maxim which sub-serves the cause of justice
    namely, actus curiae neminem gravabit.
  16. In Atma Ram Mittal v. Ishwar Singh Punia (1988) 4 SCC 284,
    this Court applied the maxim to time taken in legal proceedings under
    the Haryana Urban (Control of Rent and Eviction) Act, 1973, holding:
    “8. It is well-settled that no man should suffer because of
    the fault of the court or delay in the procedure. Broom has
    stated the maxim “actus curiae neminem gravabit” — an
    act of court shall prejudice no man. Therefore, having
    regard to the time normally consumed for adjudication, the
    129
    ten years’ exemption or holiday from the application of the
    Rent Act would become illusory, if the suit has to be filed
    within that time and be disposed of finally. It is common
    knowledge that unless a suit is instituted soon after the
    date of letting it would never be disposed of within ten
    years and even then within that time it may not be disposed
    of. That will make the ten years holiday from the Rent Act
    illusory and provide no incentive to the landlords to build
    new houses to solve problem of shortages of houses. The
    purpose of legislation would thus be defeated. Purposive
    interpretation in a social amelioration legislation is an
    imperative irrespective of anything else.”
    Likewise, in Sarah Mathew v. Institute of Cardio Vascular
    Diseases, (2014) 2 SCC 62, this Court held that for the purpose of
    computing limitation under Section 468 of the Code of Criminal
    Procedure, 1973 the relevant date is the date of filing of the complaint
    and not the date on which the Magistrate takes cognizance, applying
    the aforesaid maxim as follows:
    “39. As we have already noted in reaching this conclusion,
    light can be drawn from legal maxims. Legal maxims are
    referred to in Bharat Kale [Bharat Damodar Kale v. State of
    A.P., (2003) 8 SCC 559 : 2004 SCC (Cri) 39] , Japani
    Sahoo [Japani Sahoo v. Chandra Sekhar Mohanty, (2007)
    7 SCC 394 : (2007) 3 SCC (Cri) 388] and Vanka
    Radhamanohari [Vanka Radhamanohari v. Vanka Venkata
    Reddy, (1993) 3 SCC 4 : 1993 SCC (Cri) 571]. The object
    of the criminal law is to punish perpetrators of crime. This is
    in tune with the well-known legal maxim nullum tempus aut
    locus occurrit regi, which means that a crime never dies. At
    the same time, it is also the policy of law to assist the
    vigilant and not the sleepy. This is expressed in the Latin
    maxim vigilantibus et non dormientibus, jura subveniunt.
    Chapter XXXVI CrPC which provides limitation period for
    certain types of offences for which lesser sentence is
    provided draws support from this maxim. But, even certain
    offences such as Section 384 or 465 IPC, which have
    130
    lesser punishment may have serious social consequences.
    The provision is, therefore, made for condonation of delay.
    Treating date of filing of complaint or date of initiation of
    proceedings as the relevant date for computing limitation
    under Section 468 of the Code is supported by the legal
    maxim actus curiae neminem gravabit which means that
    the act of court shall prejudice no man. It bears repetition to
    state that the court’s inaction in taking cognizance i.e.
    court’s inaction in applying mind to the suspected offence
    should not be allowed to cause prejudice to a diligent
    complainant. Chapter XXXVI thus presents the interplay of
    these three legal maxims. The provisions of this Chapter,
    however, are not interpreted solely on the basis of these
    maxims. They only serve as guiding principles.”
    Both these judgments have been followed in Neeraj Kumar Sainy v.
    State of Uttar Pradesh (2017) 14 SCC 136 at paragraphs 29 and 32.
    Given the fact that the time taken in legal proceedings cannot
    possibly harm a litigant if the Tribunal itself cannot take up the
    litigant’s case within the requisite period for no fault of the litigant, a
    provision which mandatorily requires the CIRP to end by a certain
    date – without any exception thereto – may well be an excessive
    interference with a litigant’s fundamental right to non-arbitrary
    treatment under Article 14 and an excessive, arbitrary and therefore
    unreasonable restriction on a litigant’s fundamental right to carry on
    business under Article 19(1)(g) of the Constitution of India. This being
    the case, we would ordinarily have struck down the provision in its
    entirety. However, that would then throw the baby out with the bath
    water, inasmuch as the time taken in legal proceedings is certainly an
    131
    important factor which causes delay, and which has made previous
    statutory experiments fail as we have seen from Madras Petrochem
    (supra). Thus, while leaving the provision otherwise intact, we strike
    down the word “mandatorily” as being manifestly arbitrary under
    Article 14 of the Constitution of India and as being an excessive and
    unreasonable restriction on the litigant’s right to carry on business
    under Article 19(1)(g) of the Constitution. The effect of this declaration
    is that ordinarily the time taken in relation to the corporate resolution
    process of the corporate debtor must be completed within the outer
    limit of 330 days from the insolvency commencement date, including
    extensions and the time taken in legal proceedings. However, on the
    facts of a given case, if it can be shown to the Adjudicating Authority
    and/or Appellate Tribunal under the Code that only a short period is
    left for completion of the insolvency resolution process beyond 330
    days, and that it would be in the interest of all stakeholders that the
    corporate debtor be put back on its feet instead of being sent into
    liquidation and that the time taken in legal proceedings is largely due
    to factors owing to which the fault cannot be ascribed to the litigants
    before the Adjudicating Authority and/or Appellate Tribunal, the delay
    or a large part thereof being attributable to the tardy process of the
    Adjudicating Authority and/or the Appellate Tribunal itself, it may be
    open in such cases for the Adjudicating Authority and/or Appellate
    132
    Tribunal to extend time beyond 330 days. Likewise, even under the
    newly added proviso to Section 12, if by reason of all the aforesaid
    factors the grace period of 90 days from the date of commencement
    of the Amending Act of 2019 is exceeded, there again a discretion
    can be exercised by the Adjudicating Authority and/or Appellate
    Tribunal to further extend time keeping the aforesaid parameters in
    mind. It is only in such exceptional cases that time can be extended,
    the general rule being that 330 days is the outer limit within which
    resolution of the stressed assets of the corporate debtor must take
    place beyond which the corporate debtor is to be driven into
    liquidation.
  17. When it comes to the validity of the substitution of Section 30(2)
    (b) by Section 6 of the Amending Act of 2019, it is clear that the
    substituted Section 30(2)(b) gives operational creditors something
    more than was given earlier as it is the higher of the figures
    mentioned in sub-clauses (i) and (ii) of sub-clause (b) that is now to
    be paid as a minimum amount to operational creditors. The same
    goes for the latter part of sub-clause (b) which refers to dissentient
    financial creditors. Mrs. Madhavi Divan is correct in her argument that
    Section 30(2)(b) is in fact a beneficial provision in favour of
    operational creditors and dissentient financial creditors as they are
    133
    now to be paid a certain minimum amount, the minimum in the case
    of operational creditors being the higher of the two figures calculated
    under sub-clauses (i) and (ii) of clause (b), and the minimum in the
    case of dissentient financial creditor being a minimum amount that
    was not earlier payable. As a matter of fact, pre-amendment, secured
    financial creditors may cramdown unsecured financial creditors who
    are dissentient, the majority vote of 66% voting to give them nothing
    or next to nothing for their dues. In the earlier regime it may have
    been possible to have done this but after the amendment such
    financial creditors are now to be paid the minimum amount mentioned
    in sub-section (2). Mrs. Madhavi Divan is also correct in stating that
    the order of priority of payment of creditors mentioned in Section 53 is
    not engrafted in sub-section (2)(b) as amended. Section 53 is only
    referred to in order that a certain minimum figure be paid to different
    classes of operational and financial creditors. It is only for this
    purpose that Section 53(1) is to be looked at as it is clear that it is the
    commercial wisdom of the Committee of Creditors that is free to
    determine what amounts be paid to different classes and sub-classes
    of creditors in accordance with the provisions of the Code and the
    Regulations made thereunder.
    134
  18. As has been held in this judgment, it is clear that Explanation 1
    has only been inserted in order that the Adjudicating Authority and the
    Appellate Tribunal cannot enter into the merits of a business decision
    of the requisite majority of the Committee of Creditors. As has also
    been held in this judgment, there is no residual equity jurisdiction in
    the Adjudicating Authority or the Appellate Tribunal to interfere in the
    merits of a business decision taken by the requisite majority of the
    Committee of Creditors, provided that it is otherwise in conformity
    with the provisions of the Code and the Regulations, as has been laid
    down by this judgment.
  19. Equally, Explanation 2 applies the substituted Section to
    pending proceedings either at the level of the Adjudicating Authority
    or the Appellate Authority or in a Writ or Civil Court. As has been held
    in Swiss Ribbons (supra) and ArcelorMittal India (supra) (see
    paragraph 97 of Swiss Ribbons (supra) and paragraph 82, 84 of
    ArcelorMittal India (supra)), no vested right inheres in any resolution
    applicant to have its plan approved under the Code. Also, the Federal
    Court in Lachmeshwar Prasad Shukul v. Keshwar Lal Chaudhuri
    AIR 1941 FC 5 and later, this Court in Shiv Shakti Coop. Housing
    Society, Nagpur v. Swaraj Developers & Ors. (2003) 6 SCC 659 (at
    paragraphs 16 and 17) have held that an appellate proceeding is a
    135
    continuation of an original proceeding. This being so, a change in law
    can always be applied to an original or appellate proceeding. For this
    reason also, Explanation 2 is constitutionally valid, not having any
    retrospective operation so as to impair vested rights.
  20. The challenge to sub-clause (b) of Section 6 of the Amending
    Act of 2019, again goes to the flexibility that the Code gives to the
    Committee of Creditors to approve or not to approve a resolution plan
    and which may take into account different classes of creditors as is
    mentioned in Section 53, and different priorities and values of security
    interests of a secured creditor. This flexibility is referred to in the
    BLRC report, 2015 (see paragraph 33 of this judgment). Also, the
    discretion given to the Committee of Creditors by the word “may”
    again makes it clear that this is only a guideline which is set out by
    this sub-section which may be applied by the Committee of Creditors
    in arriving at a business decision as to acceptance or rejection of a
    resolution plan. For all these reasons, therefore, it is difficult to hold
    that any of these provisions is constitutionally infirm.
    The resolution plan of ArcelorMittal as amended and objections
    thereto
  21. The resolution plan submitted by ArcelorMittal on 02.04.2018
    proposed an upfront payment of INR 35,000 crores towards
    136
    resolution of the debt of INR 49,213 crores of financial creditors. This
    was buttressed by a letter of commitment from Credit Agricole
    Corporate and Investment Bank. From this upfront cash recovery,
    unsecured financial creditors were to be paid only an aggregate
    amount of 5% of their admitted claims. Apart from this, INR 8,000
    crores of upfront fresh capital infusion for improving operations and
    enhancing revival prospects of the corporate debtor was also
    proposed. So far as operational creditors were concerned, it was
    proposed that workmen and employees were to be paid INR 18
    crores in full against their admitted claims, and out of other
    operational creditors, those small trade creditors defined as “having
    admitted claims of less than INR 1 crore” were to be paid in full, as
    opposed to trade and government creditors of over INR 1 crore, who
    were to be paid aggregate amount INR 196 crores. Other operational
    creditors were to be given nothing, liquidation value being payable to
    operational creditors as a class being in any case nil (INR 3339
    crores were the aggregate admitted claims of all operational creditors
    as a class). Under the caption “Treatment of various stake holders”
    the plan provided as follows:-
    “VIII. Treatment of Various Stakeholders”
    xxx xxx xxx
    137
    Stakeholder Proposed Treatment
    Financial
    Creditors
    As per the Liquidation Value of
    the Corporate Debtor, the
    Secured Financial Creditors
    would realize amounts which
    were lower than the current
    outstandings on a cumulative
    basis. However, the
    Resolution Applicant
    recognizes the sacrifices
    already made by the Financial
    Creditors till date and the fact
    that debt restructuring
    attempts by the Financial
    Creditors have failed in the
    past. The Resolution Applicant
    is proposing to pay the
    Secured Financial Creditors,
    the amounts stated under
    Section V which is significantly
    higher than the reconvenes
    that the Secured Financial
    Creditors as a class would
    realize in case of liquidation.
    The payments proposed to be
    made by the Resolution
    Applicant to the unsecured
    Financial Creditors is also
    higher than the recoveries that
    the unsecured Financial
    Creditors as a class would
    realize in case of liquidation,
    since the Liquidation Value
    realizable by unsecured
    Financial Creditors is nil.
    The Resolution Applicant has
    empowered the Committee of
    Creditors to decide the
    manner in which the financial
    138
    package being offered by the
    Resolution Applicant to the
    Financial Creditors will be
    distributed to the Secured
    Financial Creditors. All such
    allocations to the Financial
    Creditors will be binding on all
    stakeholders.
    The unsecured Financial
    Creditors (including those
    Secured Financial Creditors
    who may have claims
    admitted against unsecured
    instruments) i.e. Standard
    Chartered Bank. The Bank of
    New York Mellon, London
    Branch, AXIS bank, ICICI
    Bank. Bank of Baroda, SBI
    Rupee Notes and Individual
    Rupee Notes to Melwani
    Gopal Thrumal and /or
    Melwani Vinod, Mr. Arvinlal N
    Shah & Mrs. Indumati A Shah,
    Mr. jiwat k Dansanghani and
    Mrs. Neetu J Dhansanghani
    and Nathu Ram Verma, who
    have Admitted claims as of 28
    February 2018 (based on
    document 2.5.8 uploaded on
    VDR on 6 March 2018 which
    provides Breakup of Secured
    and Unsecured financial
    Creditors), shall be paid an
    aggregate amount of 5% of
    their Admitted Claims.
    Furthermore, in accordance
    with the RFP, it is clarified
    that:
    139
    a) any surplus cash
    being the positive
    difference between
    actual working capital of
    the Corporate Debtor as
    on Plan Approval Date
    and normalized working
    capital as at 31
    December 2017, shall
    be added to upfront
    cash recovery as a
    closing adjustment
    under the Resolution
    Plan; and
    b) the EBITDA
    generated by the
    Corporate Debtor
    between the Plan
    Approval Date and the
    date on which the
    Financial Creditors are
    paid the up-front cash
    amount shall be
    available to the
    Financial Creditors over
    and above the upfront
    cash recovery under the
    Resolution Plan.
    However, notwithstanding
    anything stated herein, a
    Dissenting Financial Creditor
    will be entitled to only receive
    Liquidation Value realizable by
    such Financial Creditor in
    case of liquidation of the
    Corporate Debtor, which shall
    be paid out of the upfront cash
    recovery amount being
    offered.
    140
    Operational
    Creditors (other
    than Workmen,
    Employees and
    Governmental
    Operational
    Creditors)
    The Resolution Applicant
    recognizes the role that the
    various Trade Creditors have
    played in connection with the
    business of the Corporate
    Debtor. Whilst Operational
    Creditors as a class of
    Creditors would receive nil
    returns on liquidation of the
    Corporate Debtor, the
    Resolution Applicant has
    agreed to settle part of the
    Admitted Claims to the extent
    set out in Section V above.
    Without prejudice to the
    above, the Resolution
    Applicant is desirous of setting
    aside amounts under the
    financial package to settle at
    least part of the Claims of the
    small Trade Creditors. This
    class of Trade Creditors are
    being provided such payments
    since the Resolution applicant
    understands that these
    Persons typically form a part
    of small scale/medium sector
    enterprises, which enterprises
    play a key role in the Indian
    economy and given their scale
    of operations may not be in a
    position to weather
    macroeconomic and financial
    shocks.
    The identified Trade Creditors
    are being paid out on the
    assumption that they will
    continue their arrangements
    with the Corporate Debtor and
    shall in no manner commit any
    acts or omissions which would
    adversely impact the business
    141
    of the Corporate Debtor.
    Acceptance of payments by
    the Trade Creditors shall be
    considered as an acceptance
    of the above condition.
    The Resolution Applicant
    recognizes and understands
    that additional payment to
    certain Operational Creditors
    may have to be made as a
    part of revitalising the
    business and is prepared to
    do so, on a case by case
    basis.
    Governmental
    Operational
    Creditors
    The Resolution Applicant aims
    at establishing a good working
    relationship between the
    Governmental Authorities and
    the Corporate Debtor and will
    cause the Corporate Debtor to
    duly pay the statutory dues
    that will be incurred by the
    Corporate Debtor going
    forward from the Plan
    Approval Date in a timely
    manner. The revival of the
    Corporate Debtor will also
    enhance the tax collection by
    the Governmental Authorities
    in the geographies where the
    Corporate Debtor operates.
  22. On 22.10.2018, various changes were made in the original
    resolution plan as follows:
    “The representatives of AM India of AM India thanked the
    RP. Thereafter, they presented a brief summary of the
    revisions made to the financial proposal. They informed
    that as per the directives of the CoC, AM India had
    deliberated and negotiated with the Sub-Committee.
    142
    Thereafter, the representative highlighted certain key
    revisions made to the resolution plan, which inter alia
    included revisions in relation to (a) upfront cash recovery
    available to secured and unsecured financial creditors of
    ESIL; (b) upfront fresh capital infusion; (c) process of
    closing adjustment, which included provision of audit. He
    further added that they had not provided how the upfront
    cash would be distributed and the same has been left at
    the discretion of the CoC. He further added that the
    business plan has not undergone any substantial changes
    and the negotiations were largely around the financial
    proposal and that AM India is committed to implement the
    plan, as agreed. Thereafter, the representative of AM India
    also deliberated with the members of the CoC regarding
    the revised financial proposal and responded to the queries
    raised in relation thereto.”
    It was stated that the value and quality of security should be the basis
    on which proceeds should be distributed by most of the secured
    financial creditors. This amended resolution plan was approved by a
    majority of 92.24% of financial creditors. The sharing ratio between
    secured financial creditors having charge on project assets of the
    corporate debtor was 99.86% as opposed to 0.14%, so far as
    Standard Chartered Bank was concerned, which only had a charge
    on the pledge of shares of ESOL, being an offshore subsidiary of the
    corporate debtor. The upfront payment to secured financial creditors
    on the effective date would now be INR 41,909.29 crores and INR
    60.71 crores to Standard Chartered Bank. It was pointed out that this
    was based on the worth of those shares as security, being only INR
    143
    24.86 crores. The reasons given for acceptance of this amended
    resolution plan was stated as follows:
    “By majority consensus of COC (except Standard Chartered
    Bank and SREI), it was agreed that fairness of distribution
    would be reflected only if distribution be made based on
    underlying security value and quality of security. Based on a
    comparison of the two suggested options based on fair
    value and liquidation value, in the interest of all stake
    holders and with the objective of the Code it is proposed to
    the COC to accept the sharing ratio as per the Liquidation
    Valuation Report and also to Secured Financial Creditors
    having Charge on Project Asset of ESIL for taking a sacrifice
    of Rs.37.76 Crores (for adopting the sharing ratio as per the
    Liquidation Valuation Report instead of fair value) which
    shall be allocated to Secured Financial Creditors having
    Charge on Pledge of Shares of ESOL.
    While allocation of the Resolution Amount it is pertinent to
    note that the Committee of creditors has the widest
    discretion to determine the terms of the resolution plan.
    A. At the outset it is important to be noted that the
    legislature in their wisdom under the provisions of the
    Insolvency and Bankruptcy Code, 2016 (Code) have left
    the decision-making in respect of commercial matters
    completely in the domain of the Committee of Creditors
    (COC). In fact even the Bankruptcy Law Reforms
    Committee report (which formed the basis for the
    enactment of the Code) specifically notes the deliberate
    scheme of the Code, where the law does not prescribe any
    particular manner of insolvency resolution and leaves this
    commercial decision making process to the COC without
    the interference of the legislature as well as judiciary.
    B. Further, pro rate distribution cannot be the only method
    of distribution of assets, as it would lead to the disastrous
    consequences where the creditors would lose their
    freedom to restructure the debt as they deem fit. This an
    important commercial decision which is required to be
    made by the Code and a strait jacket formula for all cases
    would result in dilution of the provisions of the Code and
    144
    would incentivize all secured creditors to liquidate the
    company rather than opt for resolution. It was noted that
    generally all secured financial creditors are prudent entities
    which grant loans after exercising due-diligence and are
    presumed to be able to evaluate their interest and risks
    sufficiently. Moreover it may negatively impact the credit
    market and discourage banks and other financial creditors
    from granting large project loans which are more often than
    not granted against property or other valuable collateral.
    C. The Report of the Insolvency Law Committee provides
    valuable insights on the principles governing inter-creditor
    agreements and their relevance to distribution
    arrangements. In practice, subordination agreements interse creditors were respected in practice. This was also the
    stated position in insolvency resolution proceedings other
    jurisdiction and in other developed countries.
    D. The Hon’ble National Company Law Appellate Tribunal
    has held that the COC has the discretion to approve any
    resolution plan and its decision to approve the same
    cannot be interfered with by the Adjudicating Authority or
    the Appellate Authority, except for in terms of Section 31(1)
    to examine compliance of Section 30(2) read with relevant
    regulations. (See Kannan Tiruvengandram Vs. M.K. Shah
    Exports Ltd. & Ors. in and Darshak Enterprise Pvt. Ltd. and
    Ors. v. Chhaparia Industries Pvt. Ltd. and Ors.
    E. The Code specifically provides the COC with the power
    under section 30(4) of the Code, to approve a resolution
    with requisite majority as set out thereunder. It is an
    accepted position in law, and as enunciated in various
    pronouncements of the Supreme Court of India that where
    a power is conferred or a duty is imposed by a statute, and
    there is nothing expressly inhibiting the exercise of the
    power or the performance of the duty by any limitations or
    restrictions it is reasonable to hold that it carries with it all
    power of doing all such acts or employing all such means
    as are reasonably necessary for its execution. The below
    mentioned provisions of the Code and the Insolvency and
    Bankruptcy Board of India (Insolvency Resolution Process
    145
    for Corporate Persons). Regulation 2016 (CIR Regulations)
    set out the powers of the COC in this regard:
    Section 31 of the Code (Approval of Resolution Plan):
    “(1) If the Adjudicating Authority is satisfied that the
    resolution plan as approved by the committee of creditors
    under sub-section (4) of section 30 meets the requirements
    as referred to in sub-section (2) of section 30, it shall by
    order approve the resolution plan which shall be binding on
    the corporate debtor and its employees, members,
    creditors, guarantors and other stakeholders involved in the
    resolution plan.
    Regulation 39 of the CIR Regulations, 2016;
    “(2) The resolution professional shall present all resolution
    plans that meet the requirements of the Code and these
    Regulations to the Committee for its consideration.
    (3) The committee may approve any resolution plan with
    such modifications as it deems fit
    xxx xxx xxx
    K. It is a recognized principle of insolvency law that creditor
    rights and ranking of priority claims existing before
    commencement of insolvency must be recognized and
    respected in the insolvency proceedings. Recognition of
    such ranking of priorities of existing and postcommencement creditor claims provide predictability to
    lenders and ensure consistent application of the rules,
    create confidence in the proceedings and enable
    participants to adopt appropriate measures to manage risk.
    At macro level, it helps create certainty in the market and
    facilitate the provision of credit, in particular with respect to
    the rights and priorities of secured creditors. It is also well
    established that best practices require that priority to claims
    that are not based on commercial bargains should be
    minimalized. This principle is unequivocally articulated in
    the United Nations Commission on International Trade Law
    (UNCITRAL) Legislative Guide on Insolvency law
    (hereinafter, the “UNCITRAL Guide”) in the chapter that
    146
    recommends the policy and legislative design of the “key
    objectives and structure of an effective and efficient
    insolvency law”
    L. Further, in recognition of the principle that creditor rights
    and ranking of priority claims existing before
    commencement of insolvency must be recognised and
    expected in the insolvency proceedings. To protect/respect
    the creditor rights and ranking of priority claims, the IBC
    does not in any manner impose any prescription,
    mandatory or otherwise on the resolution applicant that
    would be disruptive of the creditor rights and priority claims
    of the secured creditors as on insolvency commencement
    date. If this rule was not to be recognised, it will lead to a
    free-for-all situation, no short of chaos, as any rights on
    differential security interest would then be ignored.
    M. Therefore in conclusion, since the Code provides the
    COC with the power to approve a resolution for the
    Corporate Debtor, the manner in which such resolution
    shall be executed including but not limited to the decision
    as to the methodology of distribution or the amount a
    money to be paid to individual stakeholders would also be
    a decision which the COC would be permitted to take,
    especially in the absence of any express provision in the
    Code prohibiting such a decision by the COC. As long as
    such decisions are not contrary to the provisions of the
    Code.”
  23. The final resolution plan as approved on 23.10.2018 was as
    follows – in the place of INR 35,000 crores to be paid on the effective
    date as an upfront amount, INR 39,500 crores and INR 2500 crores,
    aggregating INR 42,000 crores was to be paid. The resolution
    applicant agreed that the Committee of Creditors will decide the
    manner in which the financial package being offered by the resolution
    applicant to financial creditors will be distributed to secured financial
    147
    creditors. The payment of INR 17.4 crore was to be made to
    unsecured financial creditors with a claim amount of more than INR
    10 lakhs, and INR 30.55 lakhs to such creditors with a claim amount
    of less than INR 10 lakhs, with the fresh capital infusion for improving
    operations and enhancing revival prospects of the corporate debtor
    remaining at INR 8,000 crores. So far as operational creditors were
    concerned, there was no change made.
  24. At the 22nd meeting of the Committee of Creditors dated
    27.03.2019, the NCLT order of 08.03.2019 was discussed and it was
    felt that INR 1,000 crores extra be paid for operational creditors over
    and above INR 1 crore each, as follows:
    “The representative of EARC mentioned that without
    prejudice to the appeals, a lump sum amount may be setaside and put to vote as they are not averse to examining
    it. The representative of SBI concurred with the views of
    the representative of EARC. He further mentioned that
    CoC as well as SCB has challenged the NCLT Order. SBI
    proposed to set aside a capped amount of INR 1,000 Crore
    for operational creditors (without prejudice to their right to
    appeal). He requested that a resolution to that effect may
    be voted upon.
    The RP requested the SBI representative to clarify if the
    proposed amount of INR 1,000 Crore would be over and
    above the INR 196 Crore which is already included in the
    Resolution Plan for operational creditors. The SBI
    representative confirmed that the same would be over and
    above the current proposal, however this additional amount
    will be capped to INR 1,000 crores.”
    148
    Under the caption “discussion on the suggestions of the Hon’ble
    NCLT in relation to distribution of amounts proposed to be paid to
    financial creditors”, the minutes of the meeting reflect that the
    Committee of Creditors had sought for and obtained the opinion of
    retired Justice B.N. Srikrishna. This opinion dated 23.03.2019 stated
    as follows:
    “In view of this peculiar situation, where a financial creditor
    has advanced money to the corporate debtor assessing the
    commercial risk and covers his risk by a charge on the
    assets of the corporate debtor, there can be no question of
    his being entitled to the liquidation value or any other fixed
    value towards his debt. In any event, the plan formulated
    by the resolution applicant, has to be placed before the
    COC for its final approval. It is at that juncture the
    commercial wisdom of lenders forming the COC comes
    into play and they are entitled to take a call on either to
    approve or not to approve the resolution plan which the
    FRP has put forward before the COC for its approval. In my
    view, therefore, the Approved Resolution Plan would be
    fully justified in classifying between secured and unsecured
    financial creditor, and also according to the value of their
    securities and apportioning the amounts payable to them in
    the best manner which is considered reasonable. I might
    add here that irrespective of what the RP considers as
    reasonable, it is always open to the COC to adjudge the
    commercial wisdom of the resolution plan while approving
    it. As pointed out by the Supreme Court in K. Sashidhar vs
    Indian Overseas Bank & Ors. (Civil Appeal No. 10673 of
    2018) such commercial decision of the COC is not subject
    to appeal under the Code.
    In the premises, I am of the opinion that SCB was
    differently placed than other financial creditors in view of
    the fact it did not have any charge or security on the project
    assets but had advanced a large amount of loan amounting
    to Rs.3000 crores on the basis of the pledge over the
    shares of an offshore company and a corporate guarantee
    149
    extended by the Corporate Debtor. The resolution plan as
    finally approved by COC was fully justified in treating SCB
    as differently placed based on the cogent and intelligible
    differentia that is apparent from the facts of the case. I see
    nothing in the provisions of the Code of the Regulations
    which would militate against the decision taken by the
    COC.
    I might add here that the commercial wisdom of the lenders
    who are voting for the resolution of the COC is evidenced
    by the fact that they had created securities on the project
    assets of the Corporate Debtor after assessing the
    commercial risk involved. In the case of SCB, however,
    there seems to have been gross under security for the
    large amount of Rs.3000 crores by merely seeking a
    corporate guarantee from the Corporate Debtor along with
    a charge only on the shares of the offshore company held
    by the Corporate Debtor, wherein the liquidation value of
    such shares is a mere Rs.60.71 crores. In fact, in view of
    the fact situation, I find it hard to understand whether SCB
    can really be treated as a secured creditor in the first place.
    I am of the opinion that even if the corporate guarantee
    were to be enforced, SCB would at best stand as a
    secured creditor only to the extent of the value of the
    shares of the offshore company as on the date of
    enforcement of the guarantee and as an unsecured
    creditor with respect to the rest of the loan advanced by it.
    This is an equally valid consideration which might have
    moved the COC while approving the resolution plan by
    which the ultimate discretion for distribution is left to the
    COC with a declaration that such allocation to the financial
    creditors will be binding on all stake holders, which also
    would include SCB.
    xxx xxx xxx
    In the facts and circumstances, I am of the opinion that the
    manner in which the resolution plan was formulated and
    approved by the overwhelming majority of 92.24% of the
    voting creditors, is not only perfectly justified but is also
    equitable. As the Supreme Court has pointed out in Swiss
    Ribbons (supra), “equitable” does not mean equal
    distribution; it means distribution which does justice to
    every stakeholders involved in the process. In my opinion,
    150
    mere equal distribution would definitely do injustice to the
    large majority of 92.24% shareholders who in their
    commercial wisdom had ensured that the security was
    created on project assets, while SCB was content with
    creating a charge only on the shares of the offshore
    company and seeking a corporate guarantee from the
    Corporate Debtor.”
  25. The aforesaid opinion was shared with all Committee of
    Creditors members including Standard Chartered Bank. Importantly,
    the minutes record:
    “At this point, the representative from Canara Bank stated
    that he requires clarity on the following questions before he
    can consider the revised apportionment to SCB: (a)
    Whether any NOCs were taken from the lenders before
    taking corporate guarantee, as it is a financial covenant in
    the sanctions of the lenders? (b) When SCB had funded
    Essar Steel Offshore Ltd. (ESOL), whether SCB had not
    taken security of Trinity coal mines as collateral, and the
    cash flows and credentials from the assets as security? (c)
    What is the end-use of the loan and was that end-use
    ensured? At what stage is the project? Were the funds
    really invested in the project?
    xxx xxx xxx
    The representatives of SCB raised issue of valuation and
    mentioned that value of above INR 24 crores of ESOL
    shares has not been estimated appropriately and is
    erroneous. The value has been estimated based on
    desktop valuation and the valuer has not considered
    valuation of underlying assets. A valuation report of equity
    of Trinity was shared by RP after receipt of same from
    Corporate Debtor which shows value in excess of USD 600
    mn.
    xxx xxx xxx
    Further, the representatives of EARC added that they
    required clarify as to whether the underlying loans has
    been enforced against the principal borrower and whether
    any money has been recovered from the principal
    151
    borrower. SCB representative replied that these questions
    were not relevant at this time and they were choosing not
    to answer these questions. SBI representative pointed out
    that these questions have been raised earlier and SCB has
    never replied to these queries.
    xxx xxx xxx
    After several requests of the lenders, it was noted that SCB
    declined to share the documents and did not answer any of
    the questions as asked by the members of the CoC stating
    that the same were irrelevant at this stage.
    xxx xxx xxx
    ICICI Bank also stated that it should be recorded that SCB
    rejected offer of INR 200 crores was not considered by
    SCB. The representative of SBI mentioned that the
    proposal offered by ICICI Bank in its individual capacity and
    not by other lenders. The representative of SCB mentioned
    it is evident that the offer was only hypothetical.
    It was also suggested by EARC that revised distribution to
    SCB matter as per NCLT Order should also be voted upon
    and the other lenders concurred with the same.”
    (emphasis supplied)
    Finally, the allocation of INR 1,000 crore extra to operational creditors
    was approved by a majority of 70.73% of the Committee of Creditors.
  26. Given the aforesaid facts, Shri Sibal’s submissions on behalf of
    Standard Chartered Bank, that the offer made by ArcelorMittal of
    payment of INR 42,000 crores as upfront in order to pay 100%
    principal outstanding of secured financial creditors of the corporate
    debtor cannot be accepted. Given that Standard Chartered Bank was
    reclassified as a secured financial creditor of the corporate debtor
    only on 10.09.2018 and that the aforesaid upfront payment of INR
    152
    42,000 crores would include the principal amount payable to
    Standard Chartered Bank as well, we have seen how in the course of
    negotiation, the vast majority of financial creditors have ultimately
    decided that Standard Chartered Bank will only get an amount based
    on its security interest, which was accepted by ArcelorMittal. Shri
    Sibal also argued that the final resolution plan ultimately offered a
    sum of INR 39,500 crores instead of INR 42,000 crores, being a
    minimum upfront payment from which it was possible to negotiate
    upwards but not downwards. We cannot arrive at the conclusion that
    the acceptance of the resolution plan by the majority of the
    Committee of Creditors should be set aside on this score, inter alia,
    for the reason that Shri Sibal assured us that he was not attacking the
    acceptance of the revised plan but only distribution of amounts
    payable under the said plan. This being so, it is also not possible to
    accept the submission of Shri Sibal, that “feasibility and viability” of a
    resolution plan will not include distribution of the amount of debt
    under the said plan. It is also not possible to accept Shri Sibal’s
    submission that the resolution plan must itself provide for distribution
    inter se between secured financial creditors. It is enough that under
    the Code and the Regulations, the resolution plan provides for
    distribution of amounts payable towards debts based upon a
    classification of various types of creditors. This both the original plan
    153
    as well as the negotiated plan of ArcelorMittal have already done, as
    has been seen by us hereinabove, both plans containing the amount
    to be paid to workmen separately, operational creditors of INR 1 crore
    and less separately, operational creditors of INR 1 crore and over
    separately and financial creditors, subdivided into secured and
    unsecured as sub-classes, separately. All that was left for distribution
    by ArcelorMittal was distribution inter se between secured financial
    creditors which was then done by a majority of 92.24%, as has been
    seen above based upon the value of their respective security
    interests. Therefore, the allegation that the Committee of Creditors
    relieved ArcelorMittal from the solemn offer made before the Supreme
    Court by reducing the offer amount of INR 42,000 crores by INR
    2,500 crores so that ArcelorMittal could acquire the debts of OSPIL, is
    again a matter for negotiation being a business decision taken by the
    Committee of Creditors with ArcelorMittal. In any case ultimately INR
    35,000 crores was upped to INR 42,000 crores, it being made clear in
    the final resolution plan that upfront payment of INR 42,000 crores is
    a committed amount, even if working capital adjustment turns out to
    be below INR 2,500 crores.
  27. Shri Sibal also made an alternative submission that on the facts
    of this case, a half-way house can be found so that Standard
    154
    Chartered Bank would get payment of something more above the
    value of its security interest. The argument is that, assuming, whilst
    denying, that classification amongst secured financial creditors is
    permissible, such classification should be on the liquidation value of
    the security enjoyed by the creditor and the balance distributed to all
    secured financial creditors pro-rata. This methodology of distribution
    has, according to him, been applied in State Bank of India v. Orissa
    Manganese and Minerals Ltd. CA(IB) No. 391/KB/2018, approved
    by the NCLT and not disturbed by the NCLAT. Therefore, it is argued
    that, applying the aforesaid classification, the average liquidation
    value of the security in the instant case, is to be as per the report of
    DUFF & Phelps and RBSA, being a sum of INR 15,838 crores. This,
    according to him, is the amount required to be distributed to the
    secured financial creditors according to the value of their respective
    security interests (viz. first charge, second charge, subservient
    charge, residuary charge, etc.) and the balance to be distributed prorata amongst all financial creditors irrespective of their security. The
    sum of INR 42,000 crores offered by ArcelorMittal would therefore,
    according to him, be a sum of INR 15,838 crores paid over to the
    secured financial creditors according to the value of their security and
    the balance amount of INR 26,162 crores would then have to be
    distributed amongst all financial creditors on a pro-rata basis.
    155
  28. What is important to note is that when one reads the
    abovementioned judgment, it is a majority of 66% of the Committee of
    Creditors who has exercised the discretion vested in it under the
    Code in this particular manner, which has then correctly not been
    disturbed by the NCLT and NCLAT. Far from helping Shri Sibal’s
    client, the principle that is applied in such a case is that ultimately it is
    the commercial wisdom of the requisite majority of the Committee of
    Creditors that must prevail on the facts of any given case, which
    would include distribution in the manner suggested in Orissa
    Manganese (supra). It is, therefore, not possible to accept the
    argument that the Adjudicatory Authority and consequently the
    Appellate Authority would be vested with the discretion to apply what
    was applied by the Committee of Creditors in the Orissa Manganese
    case (supra). This submission is also devoid of merit and is,
    therefore, rejected.
  29. The other argument of Shri Sibal that Section 53 of the Code
    would be applicable only during liquidation and not at the stage of
    resolving insolvency is correct. Section 30(2)(b) of the Code refers to
    Section 53 not in the context of priority of payment of creditors, but
    only to provide for a minimum payment to operational creditors.
    However, this again does not in any manner limit the Committee of
    156
    Creditors from classifying creditors as financial or operational and as
    secured or unsecured. Full freedom and discretion has been given,
    as has been seen hereinabove, to the Committee of Creditors to so
    classify creditors and to pay secured creditors amounts which can be
    based upon the value of their security, which they would otherwise be
    able to realise outside the process of the Code, thereby stymying the
    corporate resolution process itself.
  30. The other argument based upon serious conflict of interest
    between secured and unsecured financial creditors, as the majority
    may get together to ride roughshod over the minority, is an argument
    which flies in the face of the majority of financial creditors being given
    complete discretion over feasibility and viability of resolution plans,
    which includes the manner of distribution of debts that is contained in
    them, subject to following the provisions of the Code relating, inter
    alia, to dealing with the interests of all stakeholders including
    operational creditors. The Committee of Creditors does not act in any
    fiduciary capacity to any group of creditors, as is sought to be
    suggested by Shri Sibal. On the contrary, it is to take a business
    decision based upon ground realities by a majority, which then binds
    all stakeholders, including dissentient creditors. It is important to note
    that the original threshold required by way of majority was 75%. It is
    157
    during the working of the Code that this was found to be unrealistic
    and therefore reduced to 66% – see the amendments made to
    Section 28(3) and 30(4) of the Code by the Insolvency and
    Bankruptcy Code (Second Amendment) Act of 2018. For all these
    reasons therefore, it is not possible to accept Shri Sibal’s arguments.
  31. The NCLAT judgment which substitutes its wisdom for the
    commercial wisdom of the Committee of Creditors and which also
    directs the admission of a number of claims which was done by the
    resolution applicant, without prejudice to its right to appeal against the
    aforesaid judgment, must therefore be set aside.
  32. So far as Civil Appeal No. 6409 of 2019 is concerned, we have
    perused paragraphs 70 to 76 of the impugned NCLAT judgment to
    the effect that the cheques issued by the corporate debtor due to its
    payment obligation towards Bhandar Power Limited were not issued
    with a view to secure any payment obligation of the principal borrower
    i.e. EPGL, is a finding of fact which dislodges the claim of this
    appellant to be regarded as a financial creditor. We find no infirmity in
    the aforesaid finding. This appeal is consequently dismissed.
  33. So far as Civil Appeal Diary No. 36838 is concerned, we have
    perused the relevant documents and paragraphs 63 and 64 of the
    impugned NCLAT judgment and find that the NCLAT has erred
    158
    inasmuch as it has added the claim of this Appellant to the tune of
    INR 861.19 crore despite the fact that the claim had already been
    admitted by the resolution professional thereby resulting in a double
    counting of the debt of this Appellant. This being the position, we find
    it necessary to set aside this part of the impugned NCLAT judgment
    as well.
  34. So far as Civil Appeal No. 6266 of 2019, we have perused
    paragraphs 78 to 81 of the impugned NCLAT judgment and find no
    reason to dislodge the finding of the NCLAT that the claim was filed
    by the Appellant after the approval of the resolution plan. However,
    the NCLAT’s finding that the said claim is subject to arbitration and
    that it was open for the Appellant to pursue the matter in terms of
    Section 60(6) of the Code deserves to be aside in terms of this
    judgment. This Appeal is consequently dismissed.
  35. So far as Civil Appeal No. 6269 of 2019 is concerned, we have
    perused paragraphs 83, 84 and 196 of the impugned NCLAT
    judgment and find force in the contention of the Appellant that there
    has been an error in the impugned NCLAT judgment in as much as it
    notes the claim amount, as admitted, as being a sum of INR 124.88
    crores, but later in the same judgment notes the said amount as INR
    2.47 crores based on a chart submitted by the resolution
    159
    professional. This chart submitted by the resolution professional
    specifies the amount of INR 2.47 crore (added after the NCLT
    judgment dated 08.03.2019), which is in addition to the amount of
    INR 124.88 crores already admitted by the resolution professional.
    Therefore, the NCLAT has erred in noting INR 2.47 crore amount as
    the amount of the Appellant’s claim, and this part of the judgment also
    deserves to be set aside. Thus, the claim of the appellant shall be the
    claim as admitted and registered by the resolution professional. This
    apart, we find no merit in the submission of the Appellant with respect
    to the sum of INR 121.72 crores as the same has been rightly
    rejected by the NCLAT in view of the fact that the said claim was filed
    after the completion of the CIRP period. However, the NCLAT’s
    judgment inasmuch as it left it open for the Appellant to pursue the
    matter in terms of Section 60(6) of the Code deserves to be aside in
    terms of this judgment. This Appeal is thus partly allowed.
  36. So far as Civil Appeal No. 7266 of 2019 and Civil Appeal No.
    7260 of 2019 are concerned, the resolution professional has rejected
    the claim of the Appellants on the ground of non-availability of duly
    stamped agreements in support of their claim and the failure to
    furnish proof of making payment of requisite stamp duty as per the
    Indian Stamp Act despite repeated reminders having been sent by
    160
    the resolution professional. The application filed by the Appellants
    before the NCLT came to be dismissed by an order dated 14.02.2019
    on the ground of non-prosecution. The subsequent restoration
    application filed by the appellants then came to be rejected by the
    NCLT through judgment dated 08.03.2019 on two grounds: one, that
    the applications could not be entertained at such a belated stage; and
    two, that notwithstanding the aforementioned reason, the claim had
    no merit in view of the failure to produce duly stamped agreements.
    The impugned NCLAT judgment, at paragraphs 93 and 94, upheld
    the finding of the NCLT and the resolution professional. In view of
    these concurrent findings, the claim of the Appellants therefore
    requires no interference. Further, the submission of the Appellants
    that they have now paid the requisite stamp duty, after the impugned
    NCLAT judgment, would not assist the case of the Appellants at this
    belated stage. These appeals are therefore dismissed.
  37. So far as Writ Petition (Civil) No. 1064 of 2019 is concerned, we
    have perused the relevant documents and paragraph 36 of the
    impugned NCLAT judgment and find force in the contention of the
    Writ Petitioner that the NCLAT has wrongly noted that the claim
    amount was notionally admitted by the resolution professional at INR
    1 only. The resolution professional has admitted the claim of the Writ
    161
    Petitioner to a tune of INR 17.09 crore and the same is recorded in
    the list of creditors prepared by the resolution professional. In view of
    the same, this part of the NCLAT judgment is thus erroneous and the
    claim shall be the claim as admitted and registered by the resolution
    professional. The Writ Petition is thus allowed to this extent.
  38. So far as Writ Petition (Civil) No. 1049 of 2019 is concerned,
    the Petitioner is admittedly the operational creditor of one Wind World
    India Ltd whose CIRP proceedings are pending before the NCLT,
    Ahmedabad. The Petitioner has inter alia sought for permission to
    raise various issues arising out of the facts of its own case (which has
    been raised before us herein) in the matter pending before the NCLT.
    In view of the fact that this judgment has not opined on the merits of
    the case of the Writ Petitioner pending before the NCLT, it is open to
    the Writ Petitioner to raise all contentions as permissible under the
    applicable law before the NCLT in the pending proceedings. This Writ
    Petition is thus allowed to this extent.
  39. So far as Dakshin Gujarat Vij Co. (Respondent No. 11 in Civil
    Appeal Diary No. 24417 of 2019), State Tax Officer (Respondent No.
    12 in Civil Appeal Diary No. 24417 of 2019), Gujarat Energy
    Transmission Corporation Ltd. (Respondent No. 17 in Civil Appeal
    Diary No. 24417 of 2019) and Indian Oil Corporation Ltd.
    162
    (Respondent No. 18 in Civil Appeal Diary No. 24417 of 2019) are
    concerned, the resolution professional admitted the claim of the
    abovementioned respondents notionally at INR 1 on the ground that
    there were disputes pending before various authorities in respect of
    the said amounts. However, the NCLT through its judgment dated
    08.03.2019 directed the resolution professional to register the entire
    claim of the said respondents. The NCLAT in paragraphs 43 and 196
    of the impugned judgment upheld the order passed by the NCLT as
    aforesaid and admitted the claim of the abovementioned
    respondents. We therefore hold that this part of the impugned
    judgment deserves to be set aside on the ground that the resolution
    professional was correct in only admitting the claim at a notional
    value of INR 1 due to the pendency of disputes with regard to these
    claims.
  40. The appeals filed by the Committee of Creditors of Essar Steel
    Limited and other Civil Appeals are allowed. The impugned NCLAT
    judgment is set aside, except insofar as Civil Appeal No. 6409 of
    2019, Civil Appeal No. 7266 of 2019, Civil Appeal No. 7260 of 2019
    are concerned, which are dismissed. Insofar as Civil Appeal No. 6266
    of 2019 and Civil Appeal No. 6269 of 2019 is concerned, the Appeals
    are partly allowed in terms of this judgment. The Writ Petitions are
    163
    disposed of in terms of the judgment. It is made clear that the CIRP of
    the corporate debtor in this case will take place in accordance with
    the resolution plan of ArcelorMittal dated 23.10.2018, as amended
    and accepted by the Committee of Creditors on 27.03.2019, as it has
    provided for amounts to be paid to different classes of creditors by
    following Section 30(2) and Regulation 38 of the Code.
    ……..………….……………..J.
    (R.F. Nariman)
    ……..………….……………..J.
    (Surya Kant)
    ……..………….……………..J.
    (V. Ramasubramanian)
    New Delhi;
    November 15, 2019
    164