Entitled to Minimum Value Equal to Security Interest: Supreme Court Clarifies Rights of Dissenting Creditors in Insolvency Case

In a significant ruling that clarifies the position of dissenting financial creditors in insolvency proceedings, the Supreme Court of India, in a bench comprising Justice Sanjiv Khanna and Justice S.V.N. Bhatti, passed a landmark judgment on January 3, 2024. The case, involving DBS Bank Limited Singapore and Ruchi Soya Industries Limited, centered around the interpretation of Section 30(2)(b)(ii) of the Insolvency and Bankruptcy Code, 2016 (IBC).

The apex court has set a precedent by asserting that dissenting financial creditors are entitled to a payment that is "not less than the amount payable under Section 53(1), in the event of the liquidation of the corporate debtor." This ruling ensures that secured creditors have a safety net in terms of the minimum value receivable, equivalent to their security interest, in resolution proceedings.

Justice Khanna, in the court's observation, emphasized the importance of protecting minority autonomy of creditors. He stated, "Secured credit is important for commerce as it reduces credit risk and carries lower interest due to lower loss value in the event of failure." The court underscored the need for a fair and equitable treatment of dissenting creditors in the resolution process.

The judgment also addresses the retrospective application of the IBC (Amendment) Act, 2019, to ongoing proceedings and appeals. This clarification is crucial for cases where the resolution plan has been challenged, ensuring that the amendments are applicable in such scenarios.

This ruling is a significant stride in insolvency law, providing clarity on the rights of dissenting financial creditors. It upholds the principle that despite the commercial wisdom of the Committee of Creditors, the interests of dissenting financial creditors cannot be overlooked, especially in terms of the value of their secured assets.

Date of Decision: January 03, 2024

DBS BANK LIMITED SINGAPORE VS RUCHI SOYA INDUSTRIES LIMITED  AND ANOTHER