A bank voted against a resolution plan. Now the Supreme Court has a problem.
DBS Bank, with exclusive charge on Ruchi Soya assets, was offered Rs 119 crore instead of Rs 217 crore. The court found its claim has merit—but conflicting precedents forced a referral to a larger bench.
243
crores.
DBS Bank, with exclusive charge on Ruchi Soya assets, was offered Rs 119 crore instead of Rs 217 crore. The court found its claim has merit—but conflicting precedents forced a referral to a larger bench.
DBS Bank lent Rs 243 crore to Ruchi Soya, secured by first charge on properties. When Ruchi Soya went insolvent, Patanjali's plan offered DBS only Rs 119 crore—less than half the liquidation value of its security. The bank voted no. The committee voted yes. And now the Supreme Court has a problem it cannot solve alone.
The question sounds simple. If a bank holds exclusive first charge over a company's assets, and that company goes bust, does the bank get paid the value of those assets before anyone else? Or does it stand in line with every other creditor, taking only a proportional share of whatever the resolution plan offers?
DBS Bank Singapore thought it had the answer. It had lent Ruchi Soya Industries roughly Rs 243 crore, secured by exclusive first charge on multiple properties. When Ruchi Soya entered the Corporate Insolvency Resolution Process (CIRP — the formal bankruptcy procedure under the Insolvency and Bankruptcy Code), Patanjali submitted a resolution plan worth Rs 4,134 crore against total admitted claims of Rs 8,398 crore. The Committee of Creditors (CoC — the group of lenders that decides the fate of a bankrupt company) approved the plan with a 96.95% vote — an overwhelming majority that left little room for negotiation. The plan distributed money to all creditors on a pro rata basis — meaning everyone got the same proportion of their claim, regardless of whether they held security or not.
When the bank voted no
DBS Bank was the lone dissenter. In a silent committee room, the bank’s authorised representative signed the dissent form against the backdrop of a thick, bound resolution plan document. The bank argued that its security interest — the exclusive first charge over specific properties — entitled it to at least Rs 217.86 crore, which was the liquidation value of those assets. Instead, the plan offered it only Rs 119 crore under the pro rata distribution. The bank had lent Rs 243 crore. It was being asked to take a haircut of over 50%, while unsecured creditors — those with no collateral at all — were getting the same proportional treatment.
The bank's position rested on a specific provision: Section 30(2)(b)(ii) of the Insolvency and Bankruptcy Code (IBC), as amended in 2019. This provision says that a resolution plan must ensure that dissenting financial creditors — those who vote against the plan — receive payment that is "not less than the amount to be paid to such creditors in the event of a liquidation of the corporate debtor under Section 53."
Section 53(1) of the IBC lays out the order in which assets are distributed during liquidation. At the very top of that list — first in line — are secured creditors who have realised their security interest. In plain terms: if the company is liquidated, a bank with exclusive first charge gets paid the value of its security before anyone else gets a rupee.
The amendment that changed everything
The 2019 amendment to the IBC added Explanation 2 to Section 30(2)(b), which made the provision applicable to all pending proceedings — including those where the resolution plan had already been submitted but not yet finalised. This was crucial. Ruchi Soya's CIRP was ongoing when the amendment came into force. DBS Bank argued that the amendment protected its position.
The National Company Law Tribunal (NCLT — the specialised court that handles insolvency cases) rejected DBS's application on July 24, 2019, granting provisional approval to the plan. It confirmed the plan on September 4, 2019. The National Company Law Appellate Tribunal (NCLAT — the appeal court for insolvency matters) dismissed DBS's appeals on November 18, 2019, and again on December 9, 2019. Each time, the court order sheet was stamped with a brief, clinical dismissal.
Both tribunals held that the CoC had approved the plan with an overwhelming majority, and that the pro rata distribution was a commercial decision that the court should not second-guess. DBS Bank, they said, was bound by the majority vote.
Why the Supreme Court stopped
When the matter reached the Supreme Court in January 2024, the bench of Justice Sanjiv Khanna and Justice S.V.N. Bhatti found something troubling. DBS's argument had merit. The plain language of Section 30(2)(b)(ii) seemed to guarantee dissenting financial creditors at least what they would get in liquidation — which, for a secured creditor with exclusive charge, meant the value of its security.
But there was a problem. Two different benches of the Supreme Court had already said different things about this very question.
In India Resurgence ARC Private Limited v. Amit Metaliks Limited (2021), a two-judge bench had held that a dissenting secured creditor cannot receive more than its pro rata share. The reasoning was that the CoC's commercial wisdom — its power to decide how to distribute value — should not be disturbed.
But in Committee of Creditors of Essar Steel India Limited v. Satish Kumar Gupta (2020) and Jaypee Kensington Boulevard Apartments Welfare Association v. NBCC (India) Limited (2022), three-judge benches had taken a different view. They held that Section 30(2)(b)(ii) guarantees dissenting financial creditors a minimum payment equal to their Section 53(1) entitlement — which, for secured creditors, includes the value of their security interest.
The two-judge bench in India Resurgence ARC could not overrule the three-judge benches in Essar Steel and Jaypee Kensington. But the three-judge benches had not directly addressed the specific question of whether a dissenting secured creditor with exclusive charge is entitled to the value of its security. The law was in conflict.
The referral to a larger bench
The Supreme Court found itself in an uncomfortable position. It could see that DBS Bank had a strong case. The 2019 amendment, the language of Section 30(2)(b)(ii), and the three-judge bench precedents all pointed in one direction. But the two-judge bench decision in India Resurgence ARC stood in the way. The courtroom was silent as the bench announced its decision to refer the matter, with only the rustle of papers breaking the quiet.
The court held that Explanation 2 to Section 30(2)(b) made the amended provision applicable to all pending proceedings — including Ruchi Soya's CIRP, which was still before the NCLT when the amendment came into force. The only exception was for resolution plans that had already attained finality with no pending proceedings. Ruchi Soya's plan had not reached that stage.
The court also clarified that Section 30(2)(b)(ii) entitles dissenting financial creditors to payment not less than the amount payable under Section 53(1) in the event of liquidation. As the judgment states, "the security interest converts from asset to monetary value" — meaning the creditor’s right over physical property becomes a right to a specific sum of money that must be paid.
But because of the conflict between India Resurgence ARC and the three-judge bench decisions, the court could not finally decide the case. On January 3, 2024, it referred the core question to a larger bench: Whether a dissenting financial creditor is entitled to be paid the minimum value of its security interest under Section 30(2)(b)(ii) of the IBC.
What this means for lenders and resolution plans
For banks and financial institutions that hold exclusive security over assets, this case is a warning and a promise. The warning: the law is unsettled. Until the larger bench decides, a dissenting secured creditor cannot be sure it will receive the value of its security. The promise: the Supreme Court has recognised that the plain language of the statute supports the secured creditor's position.
For resolution applicants, the case creates uncertainty. If the larger bench holds that dissenting secured creditors must be paid the value of their security, resolution plans will need to account for this. The cost of a plan could increase significantly, especially where a single creditor holds exclusive charge over valuable assets.
For the CoC, the case raises a fundamental question about the limits of majority power. Can 96.95% of creditors force a dissenting secured creditor to accept less than the value of its security? The Supreme Court has suggested that the answer may be no.
THE PLAY: If you are a secured creditor voting against a resolution plan, document the liquidation value of your security interest before the vote — and insist that the plan explicitly state how Section 30(2)(b)(ii) is being complied with.
The larger bench will now decide. Until then, every resolution plan that treats secured and unsecured creditors equally carries a legal risk that no one can quantify.