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Rahul Jain v. Rave Scans Pvt. Ltd. & Ors.

Civil Appeal · 2019 INSC 1228Decided 8 Nov 2019
Civil Appeal No. 7940 of 2019
Justice Arun Mishra · Justice S. Ravindra Bhat

Background

Rave Scans Pvt. Ltd. went through the Corporate Insolvency Resolution Process, and Rahul Jain's resolution plan, offering Rs. 54 crore against a liquidation value of Rs. 36 crore, was approved by the National Company Law Tribunal (NCLT) in October 2018. Under the plan, secured bank creditors received 45% of their claims, but Hero Fincorp Ltd., a dissenting financial creditor, was offered a lower 32.34%. Hero appealed to the National Company Law Appellate Tribunal (NCLAT), which relied on a regulation (as later amended) to find the plan discriminatory and ordered the resolution applicant to raise Hero's payout to match the other creditors, prompting Rahul Jain to appeal to the Supreme Court.

Decision Breakdown

The Supreme Court held that the resolution plan had been prepared and approved under the regulation as it stood before its October 2018 amendment, which at that time only guaranteed dissenting creditors their liquidation value, not parity with other creditors. Since the insolvency process and the plan predated the amendment, the NCLAT was wrong to apply the amended, stricter standard retrospectively and order the resolution applicant to bear a heavier financial burden. Given that the plan already offered far more than the liquidation value and had largely been implemented, the Court set aside the NCLAT's order and restored the NCLT's original approval of the resolution plan.

Lesson Learnt

Changes to insolvency regulations generally apply only going forward: a resolution plan should ordinarily be judged against the rules that existed when it was prepared and approved, not against later amendments.

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

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