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JC - Legal Updates - Lack of consideration of priority and value of security interest not a ground to challenge Resolution Plan - Supreme Court

Legal Updates

15 Jun 2021

Lack of consideration of priority and value of security interest not a ground to challenge Resolution Plan - Supreme Court

A resolution plan cannot be challenged by dissenting secured creditor as being unviable & unfeasible, on account of the priority and value of its security interest not being considered in the distribution of proceeds.

This was held by the Supreme Court in its judgment dated 13th May 2021 in matter of India Resurgence ARC Pvt Ltd VS Amit Metaliks Ltd. & Anr.

The Court in the matter observed that it was not intent of the legislature that the security interest available to a dissenting financial creditor give him some right over and above other financial creditors, which would allow him to enforce the entirety of the security interest. The Court noted that such interpretation would bring about an inequitable scenario, where the dissenting secured creditor would receive an excess amount, beyond the receivable liquidation value proposed for the same class of creditors.

The Court observed that the consideration and approval of resolution plan is essentially a matter of the commercial wisdom of Committee of Creditors (“COC”) and the scope of judicial review is limited to Section 30(2) of the Insolvency and Bankruptcy Code, 2016 (“IB Code”). It further observed that Section 30(4) of the IB Code only increased the considerations to be taken into account by the COC while exercising its commercial wisdom. The Court noted that the same was done so as to enable the COC to take an informed decision in regard to the viability and feasibility of resolution plan.

The Court, in view of the above observation, held that the business decisions taken in exercise of the commercial wisdom of CoC are not to be interfered with unless similarly situated creditors belonging to the same class are denied fair and equitable treatment.


For any further information, please contact Mr. Shubhabrata Chakraborti (shubhabrata.chakraborti@jclex.com) or Mr. Dhruv Malik (dhruv.malik@jclex.com).