COMMITTEE OF CREDITORS OF ESSAR STEEL INDIA v. SATISH KUMAR GUPTA & Ors.

5.6 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. 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. The 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. 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. [Para 57] [376-B-F] A B C D E F G H 290 SUPREME COURT REPORTS [2019] 16 S.C.R. A B C D E F G H Swiss Ribbons Private Limited v. Union of India (2019) 4 SCC 17 : [2019] 3 SCR 535 – referred to.

5.7 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. [Para 57] [377-D-F]

5.8 It is the Committee of 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. [Para 58] [379-G-H; 380- A] Mihir R. Mafatlal v. Mafatlal Industries Ltd. (1997) 1 SCC 579 : [1996] 6 Suppl. SCR 1 – referred to. The constitution of a sub-committee by the Committee of Creditors

6.1 The submission of the counsel for Standard Chartered Bank centered around the fact that the Committee of Creditors delegated its functions to a sub-committee, which delegation is COMMITTEE OF CREDITORS OF ESSAR STEEL INDIA LTD. v. SATISH KUMAR GUPTA 291 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 3487 crores as opposed to other financial creditors who were paid 74.8% of what was claimed by them. [Para 59]

6.2 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. 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. Having gone through the minutes of all the important creditors’ meetings that were held, it is found 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 sub- committee 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 sub-committee on the 12 th committee of creditors meeting of 02.05.2018, as also, in favour of decisions A B C D E F G H 292 SUPREME COURT REPORTS [2019] 16 S.C.R. A B C D E F G H 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. 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, thus, 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. The this objection of Standard Chartered Bank is also rejected. [Para 60, 62] [380-E; 383-A-H; 384-A] Pradyat Kumar Bhose v. The Hon’ble the Chief Justice of Calcutta High Court [1955] 2 SCR 1331 ; High Court of Judicature at Bombay through its Registrar v. Shirishkumar Rangrao Patil & Anr. (1997) 6 SCC 339: [1997] 3 SCR 1131 – referred to. Extinguishment of Personal Guarantees and Undecided Claims

7.1 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. [Para 65] [386-E-F]

7.2 Following the State Bank of India’s judgment, it is difficult to accept the submission 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 instant case is concerned, nothing is said COMMITTEE OF CREDITORS OF ESSAR STEEL INDIA LTD. v. SATISH KUMAR GUPTA 293 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 case, is set aside. [Para 66] [387-C-D] State Bank of India v. V. Ramakrishnan, (2018) 9 SCALE 597 – relied on.

7.3 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. For these reasons, the NCLAT judgment must also be set aside on this count. [Para 67] [387-E-G] Utilisation of profits of the corporate debtor during CIRP to pay off creditors

#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 (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. [Para 68] [387-H; 388- A] Constitutional Validity of Section 4 and 6 of the Amending Act, 2019 A B C D E F G

9.1 There is no doubt that the Amending Act of 2019 consists of several Sections which have been enacted/amended H 294 SUPREME COURT REPORTS [2019] 16 S.C.R. A B C D E F G H 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. Therefore for all these reasons Sections 4 and 6 of the Amending Act of 2019 cannot be struck down on this score. [Para 73] [392-H; 393-A- C; 395-B] Gajapati Narayan Deo and Others v. State of Orissa [1954] SCR 1 ; STO v. Ajit Mills Ltd. (1977) 4 SCC 98 : [1978] 1 SCR 338 – referred to.

9.2 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 case, 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. The raison d’être for this provision comes from the experience that has been plaguing the legislature ever since SICA was promulgated. [Para 74, 75] [395-B-E] COMMITTEE OF CREDITORS OF ESSAR STEEL INDIA LTD. v. SATISH KUMAR GUPTA 295 Madras Petrochem Limited v. BIFR (2016) 4 SCC 1 : [2016] 11 SCR 419 – referred to.

9.3 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. 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, aid is taken 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. [Para 76, 77] [397-H; 398-A; 400-F-G] K.P. Varghese v. ITO [1982] 1 SCR 629 ; K.S. Paripoornan v. State of Kerala (1994) 5 SCC 593 : [1994] 3 Suppl. SCR 405 – referred to.

9.4 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. [Para 78] [400-G-H]