In the CIRP of Rave Scans Private Limited, the Supreme Court of India has, in the matter of Rahul Jain v. Rave Scans Pvt Ltd.1 allowed the appeal filed by the Resolution Applicant against the order of the National Company Law Appellate Tribunal ('NCLAT') whereby the NCLAT had modified the resolution plan which had been approved by the National Company Law Tribunal ('NCLT'), Delhi.

The matter was in relation to the Corporate Insolvency Resolution Process (CIRP) of Rave Scans Private Ltd. On October 17, 2018 the NCLT, Delhi had approved the resolution plan (passed by the Committee of Creditors by more than 75% vote) of the Resolution Applicant after rejecting Hero Fincorp Ltd's submission that the plan was discriminatory against it as against other secured financial creditors. The NCLT had found that the provision2 had provided for approval of resolution plan by the Committee of Creditors ('CoC') by atleast 75%3 majority vote and the said requirement had been met.

Hero Fincorp Ltd., which was one of the secured financial creditors (and the dissenting creditor in the CoC), had appealed against the NCLT's approval of resolution plan before the NCLAT on the ground that the resolution plan had discriminated between the financial creditors as Hero Fincorp Ltd was provided with 32.34% of its admitted claim as against 45% of admitted claims given to other secured financial creditors.

The NCLAT, while relying on its own decisions in Central Bank of India v. Resolution Professional of the Sirpur Paper Mills Ltd and Ors and Binani Industries Limited v. Bank of Baroada and Anr, had observed that it had held the unamended/old Regulation 38 of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 as discriminatory and the same was substituted on October 5, 2018 whereby in sub-clause (c) of clause (1) of Regulation 38, the liquidation value payable to dissenting financial creditors had been deleted. The NCLAT further relied upon the judgment of the Supreme Court in Swiss Ribbons Private Limited v. Union of India whereby certain observations were made in the context of fair and equitable dealing of operational creditors' rights post the amendment made in Regulation 38.

The NCLAT further held that the NCLT failed to notice that no Resolution Plan can be approved discriminating the dissenting Financial Creditor in terms with the amended Regulation 38 and also because the NCLAT had already declared the unamended/old Regulation 38(1)(c) as illegal. The NCLAT further held that the Resolution Plan in the instant case did not confirm the test of Section 30(2)(e) of the Code being discriminatory against the similarly situated 'Secured Creditors'. The NCLAT further made an interesting observation that as per amended Section 30(2)(b)(ii) of the Code,4 Resolution Applicant may treat the dissenting Financial Creditor but such treatment can be given 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 of the Code, in the event of a liquidation of the Corporate Debtor.

The NCLAT held the Resolution Plan to be violative of Section 30(2)(e) of the Code and gave the Resolution Applicant an opportunity to provide similar treatment by providing 45% of admitted claim in place of 32.34% to Hero Fincorp Ltd.

In Appeal against the same by the Resolution Applicant, the Supreme Court observed in para 11:

"11. Section 30 lays out the duties of the resolution professional and the various steps that she or he has to take, as well as the considerations that are to weigh, in examining a resolution plan. The principle of fairness engrafted in the provision is that the plan should make a provision for repayment of debts of operational creditors having regard to the value, which shall not be less than what is prescribed by the Board (i.e. the Insolvency Board), repayable in the event of liquidation, spelt out in Section 53. Section 30(3) requires the resolution professional to present the resolution plan to the committee of creditors and Section 30(4) stipulates that approval shall be by a vote not less than 75% of the voting share of the financial creditors...."

After noting the unamended/old Regulation 38 and the amended Regulation 38, the Supreme Court further held in para 13:

"13. In the present case, it is noticeable that no doubt, Hero was provided with 32.34% of its admitted claim as it has dissented with the plan. On the other hand, Tata Capital Financial Services Ltd. was provided with 75.63% of its admitted claim; other financial creditors (Indian Overseas Bank, Bank of Baroda and Punjab National Bank) were provided with 45% of their admitted claims. Given that the resolution process began well before the amended regulation came into force (in fact, January, 2017) and the resolution plan was prepared and approved before that event, the wide observations of the NCLAT, requiring the appellant to match the pay-out (offered to other financial creditors) to Hero, was not justified. The court notices that the liquidation value of the corporate debtor was ascertained at Rs. 36 crores. Against the said amount, the appellant offered Rs. 54 crores. The plan was approved and, except the objections of the dissenting creditor (i.e Hero), the plan has attained finality. Having regard to these factors and circumstances, it is held that the NCLAT's order and directions were not justified. They are hereby set aside; the order of the NCLT is hereby restored."

In terms of the above observations, the Supreme Court allowed the appeal of the Resolution Applicant.

While the above decision relates to the CIRP beginning prior to the amendment made in Regulation 38, it would be interesting to see how Courts will react to cases where allegations of discriminatory treatment against one of the similarly situated creditors are made and the CIRP has begun after the amendment made to Regulation 38.

Further, it would be relevant to see how the allegations of discriminatory treatment would be tested in the light of the recent observations of the Supreme Court in Committee of Creditors of Essar SteelIndiaLimited v. SatishKumarGupta 2019 SCC OnLine SC 1478 and K. Sashidhar v. Indian Overseas Bank 2019 SCC Online SC 257.5

* The authors had represented one of the Financial Creditors in the matter.


1 Civil Appeal No. 7940 of 2019, decision dated November 8, 2019.

2 Section 30(4) of Insolvency and Bankruptcy Code, 2016.

3 The requirement of 75% majority vote has been reduced to 66% by the Insolvency and Bankruptcy Code (Second Amendment) Act, 2018 w.e.f. June 6, 2018.

4 Substituted by Insolvency and Bankruptcy Code (Amendment) Act, 2019 w.e.f. August 16, 2019.

5 The Supreme Court has held in these two decisions that that the limited judicial review is available upon the business decision of the majority of the Committee of Creditors and the same has to be within the four corners of Section 30(2) of the Code (for NCLT) and Section 32 read with Section 61(3) of the Code (for NCLAT).

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