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Maharashtra Seamless Limited v. Padmanabhan Venkatesh

Civil Appeal · 2020 INSC 76Decided 22 Jan 2020
Civil Appeal No. 4242 of 2019
Justice Rohinton Fali Nariman · Justice Aniruddha Bose · Justice V. Ramasubramanian

Background

A corporate debtor, United Seamless Tubular Pvt. Ltd., went through insolvency proceedings owing about Rs. 1,897 crore. Maharashtra Seamless Limited (MSL) won the bid to take over the company with a resolution plan involving an upfront payment of Rs. 477 crore, approved by 87.10% of financial creditors, even though the company's assets were separately valued (for liquidation purposes) at about Rs. 597 crore. The bankruptcy tribunal (NCLT) approved the plan, but the appellate tribunal (NCLAT) directed MSL to raise its payment to match the liquidation value, prompting MSL and a lead creditor bank to appeal; MSL also separately sought to withdraw from the deal and reclaim its deposited money.

Decision Breakdown

The Supreme Court held there is no statutory requirement that a resolution plan's payment amount must match the company's liquidation value, once a plan is approved by the required majority of the Committee of Creditors and satisfies Section 30(2) of the Insolvency and Bankruptcy Code, courts must defer to the creditors' commercial wisdom rather than reassess figures. It further held that a successful resolution applicant cannot unilaterally withdraw from an approved plan, since the exit route under Section 12-A applies only to the original insolvency applicant, not to a resolution applicant who has won the bid. The Court restored the NCLT's original approval of MSL's plan, directed a modest additional payment to operational creditors, and ordered the company's assets be physically handed over to MSL within four weeks.

Lesson Learnt

Once a company's creditors approve a rescue plan that meets the legal requirements, courts will not second-guess the agreed price on equitable grounds, and a winning bidder cannot simply walk away from its approved bid after the fact.

Official source (sci.gov.in)View Judgment (PDF)

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