DBS Bank Limited Singapore v. Ruchi Soya Industries Limited and Another (2024)

Introduction 

This landmark Supreme Court case addresses the minimum entitlement of a dissenting secured financial creditor under the Insolvency and Bankruptcy Code, 2016 (IBC) following the 2019 amendments. The case arose from Civil Appeal No. 9133 of 2019 and examined whether Section 30(2)(b)(ii) guarantees a dissenting creditor the right to receive an amount equivalent to the liquidation value of their security interest, or merely a proportionate share under the approved resolution plan. 

• The ruling identifies a fundamental conflict in judicial interpretation, necessitating referral to a Larger Bench for definitive clarification on the protection afforded to minority creditors. 

Facts 

• DBS Bank Limited Singapore extended a financial debt of approximately Rs. 243 crores to Ruchi Soya Industries Limited, secured by an exclusive first charge over specific immovable and fixed assets at multiple locations. The Corporate Insolvency Resolution Process (CIRP) commenced on December 15, 2017, with DBS Bank's claim admitted at Rs. 242.96 crores. 
• Patanjali Ayurvedic Limited submitted a resolution plan valued at Rs. 4,134 crores against aggregate financial creditor claims totaling Rs. 8,398 crores. The Committee of Creditors (CoC) approved a pari passu distribution methodology. DBS Bank dissented from the resolution plan, which was approved by 96.95% of the CoC on April 30, 2019. 
• Following the August 2019 amendment to Section 30(2)(b) of the IBC, DBS Bank requested reconsideration, claiming entitlement to Rs. 217.86 crores—the liquidation value of its security interest. The CoC declined. Under the approved distribution, DBS Bank would receive only approximately Rs. 119 crores. The NCLAT dismissed DBS Bank's appeals. 

Issues Involved 

• Whether Explanation 2 of the Insolvency and Bankruptcy Code (Amendment) Act, 2019, mandates the application of the substituted Section 30(2)(b) to appeals pending before the NCLAT, which challenged the distribution mechanism approved prior to the amendment notification. 
• Whether Section 30(2)(b)(ii) of the IBC entitles a dissenting financial creditor, who holds exclusive and superior security, to receive the minimum value equivalent to the security interest they would have realized under Section 53(1) during liquidation, or merely a pro rata share. 
• Whether the judicial interpretation provided in India Resurgence ARC Private Limited conflicts with the three-Judge Bench pronouncements in Committee of Creditors of Essar Steel India Limited and Jaypee Kensington Boulevard Apartments Welfare Association regarding the entitlement of dissenting secured creditors.

Court's Observations 

The Supreme Court made several critical observations regarding the interpretation of amended IBC provisions and dissenting creditor rights. 

Applicability of the 2019 Amendment: 

• The Court confirmed that the 2019 Amendment Act, specifically Explanation 2(ii), applied to appeals pending before the NCLAT. The amendment reflects legislative intent to apply to all proceedings pending before any adjudicating authority, unless the resolution plan has attained finality. 

Interpretation of Section 30(2)(b)(ii):

• The Court held that Section 30(2)(b)(ii) assures dissenting creditors of receiving an amount not less than what they would have received in liquidation under Section 53(1). This provision safeguards minority creditor autonomy, preventing unfair treatment and ensuring dissenting creditors are not worse off under a resolution plan than in liquidation. While respecting the CoC's commercial wisdom, this freedom is constrained by the statutory minimum entitlement. 

Value of Security Interest: 

• Citing Jaypee Kensington, the Court emphasized that a dissenting secured creditor is entitled to receive the "amount payable" quantified as the "proceeds of assets receivable under Section 53." When a dissenting creditor accepts a resolution plan, they relinquish their security interest. Their minimum entitlement is therefore the monetary value equivalent to that security interest, placing them in the same position as a secured creditor who voluntarily relinquished security under Section 53(1)(b)(ii). 

Application to Facts: 

• DBS Bank, holding exclusive security valued at Rs. 217.86 crores in liquidation, was receiving only Rs. 119 crores under pari passu distribution. The resolution plan appeared to deprive the dissenting secured creditor of minimum statutory protection. However, given conflicting precedents, the Court declined to definitively resolve the matter at the two-Judge Bench level. 

Ratio Decidendi: 

• A dissenting secured financial creditor holding exclusive or superior security interest is entitled to protection under Section 30(2)(b)(ii) of the IBC, which mandates payment of an amount not less than what they would obtain in liquidation under Section 53(1). The CoC's commercial wisdom in approving distribution mechanisms is subject to this statutory minimum entitlement. However, given the conflict between Supreme Court precedents—specifically between Essar Steel and Jaypee Kensington versus India Resurgence ARC—regarding whether this entitlement extends to the full liquidation value of the security interest, the matter requires resolution by a Larger Bench. 

Conclusion 

The Supreme Court concluded that Section 30(2)(b)(ii) was designed to protect dissenting financial creditors by guaranteeing minimum payment equivalent to liquidation value. Due to the fundamental conflict between existing precedents regarding the precise scope of this protection, the Bench referred the central question to a Larger Bench for definitive clarification. 

The matter was referred to the Hon'ble Chief Justice of India for constitution of an appropriate Larger Bench to authoritatively settle this critical aspect of insolvency law, which has far-reaching implications for secured creditor rights, security interest sanctity, and the balance between majority rule and minority protection in CIRP.