Supreme Court Reinforces Dissenting Creditors’ Rights to Security Value in IBC Resolution Plans

The case of DBS Bank Limited Singapore vs. Ruchi Soya Industries Limited (Civil Appeal No. 9133 of 2019 & Anr.), adjudicated by the Supreme Court of India in 2024, centers on a dispute under the Insolvency and Bankruptcy Code, 2016 (IBC). DBS Bank, a dissenting financial creditor, had extended a financial debt of approximately USD 50 million (Rs. 243 crore) to Ruchi Soya Industries, secured by exclusive first charges over immovable and fixed assets in multiple locations, including Kandla, Gujarat, and Nariman Point, Mumbai. The Corporate Insolvency Resolution Process (CIRP) was initiated against Ruchi Soya on 15.12.2017, following which a resolution plan by Patanjali Ayurvedic Limited was approved. DBS Bank challenged the plan’s pro-rata distribution mechanism, arguing it failed to reflect the superior value of its security interest. This challenge was rooted in the 2019 amendment to Section 30(2)(b)(ii) of the IBC, which mandates a minimum payment to dissenting financial creditors equivalent to their liquidation value under Section 53(1).

The key issue before the Supreme Court was whether Section 30(2)(b)(ii), as amended in 2019, entitles a dissenting financial creditor like DBS Bank to receive the minimum value of its security interest. DBS Bank contended that the resolution plan’s pari passu distribution, approved by 96.95% of the Committee of Creditors (CoC), provided only Rs. 119 crore against a liquidation value of Rs. 217.86 crore for its admitted claim of Rs. 242.96 crore, undermining its exclusive security. The bank emphasized that the amendment, effective from 16.08.2019, applied to pending proceedings and guaranteed dissenting creditors their security’s liquidation value. The CoC and respondents countered that the commercial wisdom of the CoC should govern, and prioritizing the full security value could incentivize liquidation over resolution, contrary to the IBC’s objectives. They further argued that the amendment did not mandate preferential treatment for dissenting creditors’ security interests over other creditors.

The Supreme Court, in its judgment delivered on 03.01.2024, held that the 2019 amendment to Section 30(2)(b)(ii) applies to pending proceedings, as clarified by Explanation 2, ensuring dissenting financial creditors receive a minimum payment equivalent to the liquidation value of their security interest under Section 53(1). The Court emphasized that while the CoC’s commercial wisdom governs resolution plan approval, Section 30(2)(b)(ii) protects dissenting creditors by guaranteeing a minimum payment, which cannot be reduced to favor assenting creditors. The Court clarified that dissenting creditors relinquish their security interest but are entitled to its monetary equivalent, rejecting interpretations that undermine this right. Noting inconsistencies in the India Resurgence ARC judgment, the Court referred the matter to a larger Bench to resolve interpretative conflicts. The ruling underscores the balance between creditor rights and the IBC’s resolution goals. It is significant for reinforcing statutory protections for dissenting financial creditors while promoting equitable treatment and asset value maximization.