The National Company Law Appellate Tribunal has affirmed a critical principle under the Insolvency and Bankruptcy Code: dissenting financial creditors are entitled to receive at least the liquidation value of their secured claims as determined by an expert evaluator appointed by the Committee of Creditors, even if the resolution plan’s upfront payment is lower. This judgment reinforces the statutory mandate under Section 30(2)(b) and the binding nature of commercially approved distribution mechanisms.
Background & Facts
The Dispute
The dispute arose during the implementation of the resolution plan for OCL Iron and Steel Ltd., following its admission into Corporate Insolvency Resolution Process (CIRP) on 20.09.2021. The central conflict was whether a dissenting secured financial creditor, State Bank of India (SBI), was entitled to receive payment based on its proportionate share of the liquidation value of its secured assets, as computed by an independent evaluator appointed by the Committee of Creditors (CoC), or whether it was bound by the reduced distribution proposed by the Monitoring Committee.
Key Facts
- Corporate Debtor: OCL Iron and Steel Ltd.
- CIRP initiated by Indian Bank under Section 7 of the IBC on 20.09.2021
- Resolution Professional appointed: Mr. Vijay Kumar Iyer on 25.11.2021
- Committee of Creditors constituted on 25.11.2021 with nine financial creditors
- Voting shares: Asia Opportunities (III) Mauritius Limited (36.22%), ICICI Bank (12.68%), State Bank of India (10.39%), Indian Bank (10.32%), UCO Bank (9.82%), Bank of Baroda (7.87%), Union Bank of India (7.11%), Punjab National Bank (0.63%), Ganesh Ores Pvt. Ltd. (4.98%)
- Resolution Plan submitted by M/s Indrani Patnaik approved by CoC via e-voting between 25.09.2022 and 12.10.2022
- Resolution Plan approved by NCLT on 20.03.2023
- Monitoring Committee constituted on 27.03.2023 to oversee implementation
- Evaluation Advisor appointed: M/s K.G. Somani & Co. LLP on 30.09.2022
- Liquidation value of SBI’s secured claim (Steel Unit) computed at Rs. 64.56 crores on 07.10.2022
- SBI, as dissenting creditor, received Rs. 35.20 crores on 15.05.2023 from the Resolution Applicant
- Monitoring Committee’s 4th meeting on 04.05.2023 reduced SBI’s payment to Rs. 35.20 crores, contrary to the Rs. 64.56 crore liquidation value
- I.A. No. 149/2023 filed by SBI on 18.05.2023 seeking enforcement of liquidation value
- I.A. No. 150/2023 filed by SRA on 19.05.2023 seeking declaration of plan compliance
- Impugned order dated 05.02.2024 directed payment of Rs. 64.56 crores to SBI
Procedural History
- 20.09.2021: Corporate Insolvency Resolution Process initiated
- 25.11.2021: Resolution Professional appointed
- 23.09.2022: 18th CoC meeting - distribution mechanism approved based on liquidation value
- 28.09.2022: E-voting concluded on distribution mechanism
- 30.09.2022: 19th CoC meeting - reaffirmed distribution mechanism; appointed evaluation advisor
- 07.10.2022: Evaluation report submitted; liquidation value for SBI determined at Rs. 64.56 crores
- 07.10.2022: 20th CoC meeting - clarified dissenting creditors to be paid minimum liquidation value
- 20.03.2023: NCLT approved Resolution Plan
- 27.03.2023: 1st Monitoring Committee meeting
- 02.05.2023: 2nd Monitoring Committee meeting - legal counsel warned against altering CoC’s decision
- 03.05.2023: 3rd Monitoring Committee meeting - same warning reiterated
- 04.05.2023: 4th Monitoring Committee meeting - reduced SBI’s payment to Rs. 35.20 crores
- 15.05.2023: Rs. 35.20 crores transferred to SBI
- 18.05.2023: I.A. No. 149 filed by SBI
- 19.05.2023: I.A. No. 150 filed by SRA
- 05.02.2024: NCLT (Cuttack) passed impugned order directing payment of Rs. 64.56 crores to SBI
- 08.04.2026: NCLAT delivered judgment on appeal
The Parties' Positions
- Appellant Banks (Indian Bank, UCO Bank, Bank of Baroda, ICICI Bank, Union Bank of India): Argued that the CoC’s 20th meeting had clarified dissenting creditors would be paid strictly per the Resolution Plan, not based on security interest. Contended that the NCLT’s order rewrites the plan and violates commercial wisdom.
- Respondent No.1 (State Bank of India): Maintained that the 18th and 19th CoC meetings had conclusively approved distribution based on liquidation value attributable to security interest, and the Monitoring Committee had no authority to override this.
- Respondent No.2 (Indrani Patnaik, SRA): Supported SBI’s position, asserting compliance with the approved plan.
- Respondent No.3 & 4 (Asia Opportunities, Punjab National Bank): Performa respondents, no substantive submissions.
Relief Sought
- Appellants sought setting aside of the NCLT’s order dated 05.02.2024
- Respondent No.1 (SBI) sought enforcement of Rs. 64.56 crores as liquidation value
- SRA sought declaration that the Resolution Plan was fully implemented
- All parties sought costs
The Legal Issue
The central question was whether a dissenting financial creditor is entitled to receive payment equal to its liquidation value, as determined by an evaluator appointed by the Committee of Creditors under Section 30(2)(b) read with Section 53 of the Insolvency and Bankruptcy Code, even when the resolution plan’s upfront payment is lower, and whether the Monitoring Committee may unilaterally reduce such payment.
Arguments Presented
For the Appellant
The Appellant Banks contended that the 20th CoC meeting on 07.10.2022 had conclusively resolved that dissenting secured financial creditors would be paid strictly in accordance with the Resolution Plan’s terms, not based on individual security interest. They relied on Clause 4.1.5.2 and 4.1.5.3 of the Resolution Plan, which limited dissenting creditors’ entitlement to the statutory minimum under Section 30(2)(b) and excluded them from proceeds of the Auto Unit. They argued that the NCLT’s order, by directing payment based on liquidation value, effectively rewrites the plan and undermines the CoC’s commercial wisdom. They further cited India Resurgence ARC Pvt. Ltd. v. Amit Metaliks Ltd. to argue that dissenting creditors cannot claim more than the liquidation value, implying that the NCLT’s order granted an impermissible premium.
For the Respondent
SBI, represented by Sr. Advocate Krishnendu Datta, argued that the 18th and 19th CoC meetings had explicitly approved a distribution mechanism based on the liquidation value attributable to each creditor’s security interest. The CoC had appointed M/s K.G. Somani & Co. LLP to compute this value, which resulted in Rs. 64.56 crores for SBI - a figure based solely on the Steel Unit, not the Auto Unit. SBI emphasized that the Resolution Plan, as approved under Section 31, incorporated this mechanism via Clauses 4.1.5.2, 4.1.5.5, and 4.1.5.6. The Monitoring Committee, they argued, had no authority to alter the CoC’s decision, as established in Bank of Baroda v. IDBI Bank Limited. The payment of Rs. 64.56 crores was not a premium but a statutory minimum under Section 30(2)(b), and the NCLT merely enforced a binding commercial decision.
The Court's Analysis
The NCLAT undertook a meticulous review of the CoC’s decision-making process, the Resolution Plan’s clauses, and the statutory framework under Sections 30 and 53 of the IBC. The Tribunal emphasized that the CoC’s commercial wisdom, once exercised and incorporated into a resolution plan approved under Section 31, becomes binding on all stakeholders, including the Monitoring Committee.
"The CoC, in its 18th and 19th meetings, consciously approved a distribution mechanism based on liquidation value attributable to security interest. This was not a preliminary proposal but a final, binding commercial decision."
The Tribunal noted that the 20th CoC meeting did not override the earlier decisions but merely clarified that dissenting creditors would receive at least the liquidation value - reinforcing, not replacing, the prior resolution. The Resolution Plan’s Clauses 4.1.5.2 and 4.1.5.6 explicitly required payment to dissenting creditors of the higher of the plan amount or liquidation value, thereby incorporating the CoC’s decision into the plan’s legal structure.
The Court rejected the Appellants’ reliance on India Resurgence ARC v. Amit Metaliks, observing that the Supreme Court’s holding was about preventing dissenting creditors from claiming more than their liquidation value - not about denying them their full statutory entitlement. Here, SBI sought only its computed liquidation value, not more.
"The amount of Rs. 64.56 crores represents the liquidation value attributable to SBI’s security interest in the Steel Unit - not a premium, but the statutory minimum mandated by Section 30(2)(b)."
The Tribunal further held that the Monitoring Committee, constituted under Regulation 38(4), has no power to alter the distribution mechanism. Its role is limited to implementation and reporting. The decision to reduce SBI’s payment to Rs. 35.20 crores was ultra vires and contrary to the CoC’s binding resolution.
The Court also dismissed the Appellants’ claim that SBI was receiving proceeds from the Auto Unit, noting the evaluation report clearly attributed the Rs. 64.56 crores solely to the Steel Unit, and Clause 4.1.5.3 explicitly allocated Auto Unit proceeds to assenting creditors only.
The Verdict
The NCLAT dismissed the appeal. The impugned order dated 05.02.2024 was upheld. State Bank of India, as a dissenting secured financial creditor, is entitled to receive Rs. 64.56 crores as its liquidation value, computed by the CoC-appointed evaluator and incorporated into the approved Resolution Plan. The Monitoring Committee’s reduction of payment to Rs. 35.20 crores was set aside. No costs were awarded. The Resolution Applicant must disburse the full amount within 30 days of the judgment.
What This Means For Similar Cases
Liquidation Value Is Non-Negotiable
- Practitioners must ensure that resolution plans explicitly incorporate the liquidation value calculation as determined by a CoC-appointed evaluator
- Any attempt to cap dissenting creditor payments below this value violates Section 30(2)(b) and is legally void
- The statutory minimum is not a ceiling but a floor - creditors are entitled to the higher of plan amount or liquidation value
Monitoring Committee Has No Amending Power
- The Monitoring Committee is an implementation body, not a decision-making body
- Any attempt by the Monitoring Committee to modify distribution terms - even with majority consent - is ultra vires
- Legal counsel must advise CoCs to embed all distribution terms in the resolution plan before NCLT approval
Commercial Wisdom Is Binding, Not Advisory
- CoC decisions on distribution, once approved by the NCLT, attain finality under Section 31
- Subsequent changes by any subset of creditors or the Monitoring Committee are impermissible
- Courts will not entertain challenges to distribution mechanisms unless they violate statutory minimums
