DBS Bank Ltd. Singapore vs. Ruchi Soya Industries Ltd.
Citation: 2024 INSC 14; Civil Appeal No. 9133 of 2019; Bench: Justice Sanjiv Khanna, Justice S.V.N. Bhatti.
Background
DBS Bank Ltd., Singapore, extended a secured loan of approximately USD 50 million (INR 243 crore) to Ruchi Soya Industries Ltd., secured by a first charge over immovable assets. When Ruchi Soya underwent Corporate Insolvency Resolution Process (CIRP) under the Insolvency and Bankruptcy Code, 2016 (IBC), the Committee of Creditors (CoC) approved a resolution plan by Patanjali Ayurvedic Ltd., offering INR 4,134 crore against total admitted claims of INR 8,398 crore. DBS Bank, as a dissenting secured financial creditor, objected to the plan, arguing that it was entitled to at least the liquidation value of its security interest under Section 30(2)(b)(ii) of the IBC, as amended in 2019.
Key Legal Issues
Whether a dissenting secured financial creditor is entitled to the minimum value of its security interest under Section 30(2)(b)(ii) of the IBC.
Whether the distribution mechanism in the resolution plan can disregard the priority of security interests in favor of pari passu treatment of all financial creditors.
Supreme Court’s Analysis
Interpretation of Section 30(2)(b)(ii):
The Court held that Section 30(2)(b)(ii) ensures dissenting financial creditors receive at least the amount they would get in liquidation, but does not entitle them to the full value of their security interest if it exceeds the liquidation value.
Distribution Principle:
The Court emphasized that the purpose of the 2019 amendment was to prevent dissenting creditors from receiving less than their liquidation entitlement, but not to grant them preferential recovery over other similarly placed creditors. The Court clarified that the “commercial wisdom” of the CoC governs the distribution of resolution proceeds, subject to the minimum protection for dissenting creditors.
Precedent and Reference to Larger Bench:
The Court noted a contradiction between its own earlier judgments (India Resurgence ARC v. Amit Metaliks Ltd. and Essar Steel), and referred the issue to a larger bench for authoritative resolution, while clarifying the law in the interim.
Decision
The Supreme Court upheld the resolution plan’s pari passu distribution, holding that dissenting secured creditors are entitled to at least their liquidation value, but not the full value of their security interest if that amount is higher. The appeal by DBS Bank was dismissed, and the distribution mechanism approved by the CoC was sustained.
Significance
This judgment clarifies that dissenting secured financial creditors cannot claim preferential payment above the liquidation value of their security interest during CIRP. The decision reinforces the primacy of the CoC’s commercial wisdom and the IBC’s goal of equitable treatment for all creditors, subject to statutory safeguards for dissenters. The issue has been referred to a larger bench for further clarity.
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