MANU/SC/1577/2019

Equivalent Citation: [2019]153C LA275(SC ), [2020]219C ompC as97(SC ), (2020)1C ompLJ1(SC ), (2019)8MLJ524, 2019(16)SC ALE319

IN THE SUPREME COURT OF INDIA

Civil Appeal Nos. 8766-67 of 2019, Diary No. 24417 of 2019, Civil Appeal Nos. 5634-
5635, 5636-5637, 5716-5719, 5996, 6266, 6269 of 2019, Writ Petition (Civil) Nos.
1055, 1064, 1049, 1050, 1057, 1058, 1061, 1060, 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) Nos. 1066, 1087, 1110, 1113, 1121 of 2019, Civil Appeal
No. 8768 of 2019, Diary No. 31409 of 2019, Civil Appeal Nos. 7266, 7260 of 2019,
Writ Petition (Civil) No. 1246 of 2019, Civil Appeal No. 8769 of 2019, Diary No.
36838 of 2019 and Writ Petition (Civil) No. 1296 of 2019
Decided On: 15.11.2019
Appellants: Committee of Creditors of Essar Steel India Limited
Vs.
Respondent: Satish Kumar Gupta and Ors.
Hon'ble Judges/Coram:
Rohinton Fali Nariman, Surya Kant and V. Ramasubramanian, JJ.
Counsels:
For Appearing Parties: K.K. Venugopal, Attorney General for India, Tushar Mehta, SG,
Madhavi Divan, ASG, P.K. Jani, AAG, Rakesh Dwivedi, Gopal Subramanium, Shyam
Divan, Harish Salve, Neeraj Kishan Kaul, Salman Khurshid, Parag Tripathi, Nikhil
Nayyar, Harin P. Raval, M.G. Ramachandran, Chander Uday Singh, Ranjit Kumar, Kapil
Sibal, Arvind Datar, Ramji Srinivasan, Nakul Dewan, Sr. Advs., Chinmayee Chandra,
Arvind Kumar Sharma, Aniruddha P. Mayee, A.R. Rajarajan, Sanjeev Kumar
Choudhary, Sapan Gupta, Manu Nair, Misha, Siddhant Kant, Mrida Lakhmani, Jasveen
Kaur, Moushmi Mehta, Moulshree Shukla, Eklavya Dwivedi, S.S. Shroff, Anannya
Ghosh, Hitesh Malik, Pawan Bhushan, Dushyant Manocha, Hitesh Saini, Ujjwala P.,
Anindita Mitra, Ruby Singh Ahuja, Sudhir Sharma, Vishal Gehrana, Anupam Prakash,
Utkarsh Maria, Abhishek Swaroop, Misha Chandna, Deepak Joshi, Avishkar Singhvi,
Amit Bhandari, Naman Bagga, Advs. for Karanjawala & Co., Dhruv Malik, Ashish
Mukhi, Kamlendra Singh, Lalltaksh Joshi, Madhurima Sarangi, Zafar Khurshid,
Vikramaditya Singh, Mitali Chauhan, Advs. for Juris Corp., Ashu Kansal, Stuti Vatsa,
Sneha Kohli, Niharika Ahluwalia, Alok Dhir, Varsha Banerjee, T.V.S. Raghavendra
Sreyas, Nipun Saxena, Sukanya Singh, Shally Bhasin, Shubham Kulshreshtha, Kartikey
Kanojiya, Hemantika Wahi, Ranjitha Ramachandran, Jesal Wahi, Puja Singh, Anand
Varma, Dhairya Madan, Shwetank Singh, Vanshika Singh, Arvind Kumar Gupta, Purti
Marwaha Gupta, Twisha, V.S. Lakshmi, A. Venayagam Balan, Vikas Mehta, Yasanth
Bharani, Adith Nair, Arjun Asthana, Shivani Kachwaha, S. Ghosh, Ujjaini Chatterjee,
Siddhartha Sharma, Anshula Vijay Kumar Grover, Dhaval Mehrotra, Sudhanshu Sikka,
Advs. for K. Ashar & Co., Zainab Bharmal, Kristy Baptist, E.C. Agrawala, Sandeep
Singhi, Gaurav Mathur, Anushree Prashit Kapadia, Abhishek Shah, Sudarsh Menon,
Samarendra B., Ram Gupta, Neha Naik, P.S. Sudheer, Rishi Maheshwari, Anne
Mathew, Bharat Sood, Shruti Jose, Dhananjay Kumar, Raunak Dhillon, Ananya Dhar
Choudhury, Ishmeet Kaur, Sylona Mohapatra, Advs. for Cyril Amarchand Mangaldas,
Soumya Dutta, Pradeep Mishra, Manoj Kumar Sharma, Daleep Kumar Dhyani, Suraj
Singh, Pallavi Pratap, Neema, Advs. for Pratap and Co., Rajat Navet, Manish Kumar
Bishnoi, Mehak Bakshi, Ajay Bhargava, Vanita Bhargava, Wamika Trehan, Vansha

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Sethi Suneja, Gaurav Juneja, Aditya Ganju, Priyanka Malhotra, Advs. for Khaitan &
Co., Garima Bajaj, Satendra Kumar Rai, Chandra Prakash, Akshay Girish Ringe, Megha
Mukherjee, Advs., D.S.K. Legal and Vipin Kumar Jain, Adv.
Case Category:
COMPANY LAW, MRTP AND ALLIED MATTERS
JUDGMENT
Rohinton Fali 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 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
MANU/SC/1123/2018 : (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 12.02.2018, one by ArcelorMittal India
Private Limited (hereinafter referred to as "ArcelorMittal") and Anr. 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

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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 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 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. 4,700 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 view that debts of the entire operational creditors
can be satisfied in a reasonable and fair manner and then such I.A.s

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 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 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 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

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 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 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 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
MANU/SC/0079/2019 : (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. They then argued that the
health of the financial sector is critical for the overall health and growth of the

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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 MANU/SC/0189/2019, 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 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 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

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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 3,487.10 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 3,462.14 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 this figure to approximately INR
2,160 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 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 originally conceived,

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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 2,585 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 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 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

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Amending Act of 2019 in particular, which amended 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 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.
1 1 . 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 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 1,78,50,51,792, 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,

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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 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 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.
1 3 . 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 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.
1 5 . 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.

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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 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 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.
1 7 . 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 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 time-bound frame.

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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 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 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 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

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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.
1 9 . 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.
2 1 . 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- 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.
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.

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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 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.
2 3 . 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. 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.
2 5 . 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 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

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 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) ***
(k) ***
(l) other information, which the resolution professional deems relevant to the
committee.
2 6 . 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 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.

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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 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 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

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 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 sub-
regulation (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 sub-regulation
(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.
81. 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.
Role of the prospective resolution applicant
28. 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
18. 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

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 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.
19. 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 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.
20. 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 as sale of assets or parts of the business,
extension of maturity dates, changes to capital structure of the business and
supervision of implementation).
2 9 . 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

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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;
(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.
3 0 . 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

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deal with the interests of all stakeholders including financial creditors and 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
31. 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:

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 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 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;
32. 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.
3 3 . 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 Committee. The appropriate disposition of a defaulting firm is
a business decision, and only the creditors should make it.
xxx xxx xxx
5. 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 non-voting member on the
creditors committee, and will be invited to all meetings. The voting of the

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 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
4. 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

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 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.
34. The aforesaid extracts follow what is stated in the UNCITRAL Legislative Guide
which prescribes as follows:
2. Nature or form of a plan
3. 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
non-intrusive 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
20. 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 as
sale of assets or parts of the business, extension of maturity dates, changes
to capital structure of the business and supervision of implementation)."
3 5 . 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.

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36. 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:
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;
(l) make changes in the appointment or terms of contract of
such personnel as specified by the committee of creditors;

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 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 feasibility and viability, and various other requirements
as may be prescribed by the Regulations.
37. 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.
3 8 . 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.

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39. 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 '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 self-
contained code, providing for the procedure for consideration of the
resolution plan by the CoC.
21. 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.
22. 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):
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.
(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

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 (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
39. 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 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.
40. 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

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"feasibility and viability" of a resolution plan, which 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
41. 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, MANU/SC/1063/2017 : (2018) 1 SCC
407 and Macquarie Bank Ltd. v. Shilpi Cable Technologies Ltd.
MANU/SC/1609/2017 : (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.
42. 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 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
25. The Court, however, was not called upon to deal with the specific issue

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 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 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.
43. 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 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

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 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.
44. 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 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.
45. 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

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 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.
46. 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 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
49. 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 non-performer 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 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.
51. 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

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 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
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).
43. 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
(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

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 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.
44. 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
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

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 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 Synergies-Dooray 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 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.
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.
45. 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 process and must therefore make
past and present payments to various operational creditors without which such

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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.
27. 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 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, MANU/SC/1123/2018 : (2019) 2 SCC 1 at para 83, fn
3).
46. 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 would amount to nil after

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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 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
47. 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
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.
48. The UNCITRAL Legislative Guide states:
Designing the key objectives and structure of an effective and
efficient insolvency law
xxx xxx xxx
4. Ensuring equitable treatment of similarly situated creditors
7. 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

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 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 transactions detrimental to equitable treatment of
creditors can be avoided.
xxx xxx xxx
5. Approval of a plan
xxx xxx xxx
(i) Classification of claims
27. 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
28. 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.

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 29. 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
34. 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.
35. 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 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.

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 (ii) Classes of secured and priority creditors
36. 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 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
38. 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.
39. 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.
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

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 The Committee chose the following principles to design the new insolvency
and bankruptcy resolution framework:
IV. The Code will ensure a collective process.
9. 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.
10. 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.
11. 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.
12. 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.
13. 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 bankruptcy compared with
the phase of insolvency resolution.
49. 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:
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

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 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.
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 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 Corporation, MANU/FESC/0194/2004 : 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.
50. 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

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 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 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-Ã -vis the debtor and third parties. An effective
framework needs to allow quick and predictable enforcement both
within and outside insolvency proceedings.
51. 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

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 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 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.
52. 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 sub-classification and that the advantage of such system is that it
avoids 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".
53. 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

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 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 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.
54. 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 distressed assets
takes place and only if the same is not possible should liquidation follow.
55. 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 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

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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 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.
51. 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

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 75. 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
76. 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
7. 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 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.
77. 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

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 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:
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.
56. 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 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

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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.
57. 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 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:
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.
7. The amounts provided for the stakeholders under the Resolution Plan is as
under:
(Amount in Rs. Lakh)
Sl. Category of Amount Amount Amount Amount
No. Stakeholder Claimed Admitted Provided Provided
under to the
the Plan Amount
Claimed
(%)
1 Dissenting
Secured
Financial
Creditors
2 Other

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 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 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.
58. However, Shri Sibal relied strongly upon a judgment of this Court being Mihir R.
Mafatlal v. Mafatlal Industries Ltd. MANU/SC/2143/1996 : (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 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

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 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:
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.
I n 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 Adjudicating Authority under the
Code, whose jurisdiction is circumscribed by Section 30(2). It is the Committee of

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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
59. A large part of Shri Sibal's submission was centered around the fact that the
Committee of Creditors delegated its functions to a sub-committee, 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 3,487 crores as opposed to other
financial creditors who were paid 74.8% of what was claimed by them.
60. 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.
6 1 . I n Pradyat Kumar Bhose v. The Hon'ble the Chief Justice of Calcutta
High Court MANU/SC/0023/1955 : (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. As pointed out in Barnard v.
National Dock Labour Board [MANU/UKWA/0089/1953 : (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.

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 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 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 and Anr. MANU/SC/0692/1997 : (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

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 decision to consider the report of the enquiry officer 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.
6 2 . 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 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 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
63. 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.
64. Shri Prashant Ruia a promoter/director of the corporate debtor in his personal

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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.
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 in this regard,
pursuant to the Acquisition Structure, with effect from the
Effective Date;

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 -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.
65. 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.
We were also informed by the learned senior Counsel that the personal guarantees of
the promoter group have been invoked and 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.
66. 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. Ramakrishnan, MANU/SC/0849/2018 :
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

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 guarantor. This is perhaps the reason that Annexure VI(e) to Form 6
contained in the Rules and Regulation 36(2) 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.
67. 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 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
6 8 . 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
69. I n 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

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 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.
70. 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, 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 judgment on the constitutionality of the IBC earlier
this year, the Supreme Court had justified the difference between 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

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 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
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.
71. 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

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 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
6. Amendment to Section 30.
In Section 30 of the principal Act,--
(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
Sub-section (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;
b) in Sub-section (4), after the words "feasibility and viability,", the

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 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.
72. 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.
73. 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 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 MANU/SC/0014/1953 :
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 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.

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Likewise, a 7-Judge Bench in STO v. Ajit Mills Ltd. MANU/SC/0300/1977 : (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 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.
74. 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
such date is given, within which such process shall either be completed or the
corporate debtor be sent into liquidation.

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75. 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 MANU/SC/0088/2016 : (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:
• 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

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 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 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.
76. 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

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 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:
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.
77. Shri Sibal vehemently objected to any reliance on the speech of the Minister and
cited K.P. Varghese v. ITO MANU/SC/0300/1981 : (1982) 1 SCR 629 andK.S.
Paripoornan v. State of Kerala MANU/SC/0200/1995 : (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 [MANU/SC/0273/1975 : (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 [MANU/SC/0253/1975 : (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 [MANU/SC/0296/1979 : (1980) 2 SCC 31: 1980 SCC (Tax) 170 :
121 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

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 Act and Section 30(1) of the amending Act in Zora Singh
[MANU/SC/0471/1992 : (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
[MANU/SC/0022/1952 : 1953 SCR 1, 28 : AIR 1952 SC 369];State of W.B.
v. Subodh Gopal Bose [MANU/SC/0018/1953 : 1954 SCR 587, 628: AIR
1954 SC 92] per Das, J.; State of W.B. v. Union of India
MANU/SC/0086/1962 : [(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. [MANU/SC/0068/1952 : 1952 SCR 1112: AIR
1952 SC 366] and Aswini Kumar v. Arabinda Bose [MANU/SC/0022/1952 :
1953 SCR 1, 28: AIR 1952 SC369].) 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.
78. 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.
79. In Atma Ram Mittal v. Ishwar Singh Punia MANU/SC/0032/1988 : (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,

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 having regard to the time normally consumed for adjudication, the 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,
MANU/SC/1210/2013 : (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., MANU/SC/0794/2003 : (2003) 8 SCC 559:
2004 SCC (Cri.) 39], Japani Sahoo [Japani Sahoo v. Chandra Sekhar
Mohanty, MANU/SC/3080/2007 : (2007) 7 SCC 394: (2007) 3 SCC (Cri.)
388] and Vanka Radhamanohari [Vanka Radhamanohari v. Vanka Venkata
Reddy, MANU/SC/0510/1993 : (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 Code
of Criminal Procedure 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 Indian Penal
Code, which have 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 MANU/SC/0283/2017 : (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

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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 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 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.
80. 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 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

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the provisions of the Code and the Regulations made thereunder.
81. 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.
82. 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 MANU/FE/0002/1940 : AIR 1941 FC 5
and later, this Court in Shiv Shakti Coop. Housing Society, Nagpur v. Swaraj
Developers and Ors. MANU/SC/0335/2003 : (2003) 6 SCC 659 (at paragraphs 16
and 17) have held that an appellate proceeding is a 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.
83. 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
8 4 . The resolution plan submitted by ArcelorMittal on 02.04.2018 proposed an
upfront payment of INR 35,000 crores towards 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

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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
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
f a c t 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
t h e 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 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

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 admitted against unsecured
instruments) i.e. Standard
Chartered Bank. The Bank of New
York Mellon, London Branch, AXIS
bank, ICICI Bank. Bank ofBaroda,
SBI Rupee Notes and Individual
Rupee Notes to
MelwaniGopalThrumal and/or
MelwaniVinod, Mr. Arvinlal N Shah
& Mrs. Indumati A Shah, Mr. jiwat
K Dansanghani and Mrs. Neetu J
D hansanghani 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:
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.
Operational CreditorsThe Resolution Applicant

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 Operational CreditorsThe Resolution Applicant
(other than Workmen, recognizes the role that the various
Employees and Trade Creditors have played in
Governmental connection with the business of the
Operational Creditors) 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. 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 The Resolution Applicant aims at
Operational Creditors establishing a good working
relationship between the

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 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.
85. 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. 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
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

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 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 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 inter-se 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 v. M.K. Shah
Exports Ltd. and 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

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 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 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
post-commencement 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 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

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 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.
86. 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 2,500 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 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.
87. 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 set-aside 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.
Under the caption "discussion on the suggestions of the Hon'ble NCLT in relation to

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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
v. Indian Overseas Bank and 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. 3,000 crores on the basis of the pledge over the shares of
an offshore company and a corporate guarantee 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. 3,000 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

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 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, 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.
8 8 . 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
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.

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 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.
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.
8 9 . 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 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 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

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be below INR 2,500 crores.
90. Shri Sibal also made an alternative submission that on the facts of this case, a
half-way house can be found so that Standard 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 pro-rata 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.
91. 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.
92. 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 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.
93. 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,

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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 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.
94. 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.
9 5 . 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.
9 6 . 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 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.
97. 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.
9 8 . 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 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

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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.
99. 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 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.
100. 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 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.
101. 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.
102. 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.(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

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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.
103. 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 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.

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.
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
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.
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