A bank with exclusive security got less than liquidation value. The Supreme Court says — wait.

A Singapore bank lent Rs. 243 crore to Ruchi Soya, secured by exclusive first charge over properties. When the company went insolvent, the resolution plan offered equal distribution. The bank voted no. Now the Supreme Court says: the real question hasn't been answered yet.

DBS Bank Singapore held the first claim — the most senior lien — over Ruchi Soya's assets worth Rs. 218 crore. But when Patanjali Ayurvedic's resolution plan was approved, the bank was offered only Rs. 119 crore under a system that treated all creditors equally. The bank walked away with less than the liquidation value of its own security. And the Supreme Court has now admitted that the law on this point is so tangled it needs a larger bench to untie the knot.

When the first charge lost its meaning

In 2017, Ruchi Soya Industries — one of India's largest edible oil companies — collapsed under debt. The National Company Law Tribunal (NCLT, the specialised court for corporate insolvencies) admitted the company into the Corporate Insolvency Resolution Process (CIRP, the formal bankruptcy procedure under the Insolvency and Bankruptcy Code).

Among Ruchi Soya's creditors was DBS Bank Singapore. The bank had lent approximately Rs. 243 crore, secured by an exclusive first charge over multiple properties. First charge means that in case of default, the bank had the right to be paid first from the sale of those specific assets — before any other creditor touched the money.

Patanjali Ayurvedic submitted a resolution plan offering about Rs. 4,134 crore — roughly 49% of the total claims. The Committee of Creditors (CoC, the group of lenders that votes on resolution plans) approved the plan with a massive 96.95% majority. But the plan distributed the proceeds equally among all creditors — a method called pari passu (Latin for "equal step"). DBS Bank voted against it. It became a "dissenting financial creditor" — a lender that disagreed with the plan but was bound by the majority's decision.

Why the bank said no

DBS Bank's argument was straightforward. Under the resolution plan, the bank would receive only Rs. 119 crore. But the liquidation value of its exclusive security interest — what the properties would fetch if the company were sold off piece by piece — was Rs. 217.86 crore. The bank argued that the 2019 amendment to the Insolvency and Bankruptcy Code (IBC) protected dissenting creditors like itself. Section 30(2)(b)(ii) of the IBC (the provision that governs payments to creditors who vote against a resolution plan) said that a dissenting financial creditor must receive at least the amount it would get if the company were liquidated under Section 53(1) (the waterfall provision that determines who gets paid first in liquidation).

Since DBS Bank held a first charge, in a liquidation it would be paid before almost everyone else. So the bank argued: the law guaranteed it at least the liquidation value of its security — not a share of a pool that diluted its priority.

The CoC and the resolution professional disagreed. They said the pari passu distribution was fair because the resolution plan was approved by an overwhelming majority. The NCLT agreed with the majority. So did the National Company Law Appellate Tribunal (NCLAT, the appellate body for insolvency cases). DBS Bank appealed to the Supreme Court.

The contradiction the court couldn't ignore

The Supreme Court bench — Justices Sanjiv Khanna and S.V.N. Bhatti — found that DBS Bank's position had real legal weight. But they also found a deeper problem: two different benches of the Supreme Court had given conflicting interpretations of the same provision.

In Committee of Creditors of Essar Steel India Limited v. Satish Kumar Gupta (2020), a three-judge bench had held that a dissenting financial creditor was entitled to the liquidation value of its security interest. In Jaypee Kensington Boulevard Apartments Welfare Association v. NBCC (India) Limited (2022), another three-judge bench had taken a similar view. But in India Resurgence ARC Private Limited v. Amit Metaliks Limited (2021), a two-judge bench had held the opposite — that a dissenting creditor was not entitled to the minimum liquidation value of its security.

This is not a minor disagreement. The difference between the two interpretations is the difference between Rs. 119 crore and Rs. 218 crore for DBS Bank. For the entire insolvency system, it is the difference between respecting contractual security and overriding it with majority rule.

What the court said about the amendment

The 2019 amendment to the IBC inserted Explanation 2 to Section 30(2)(b), which made the amended provision applicable to pending proceedings — provided the resolution plan had not attained finality (meaning the plan had not been finally approved by all courts). The Supreme Court held that since DBS Bank's appeal was still pending, the amendment applied to its case.

The court also clarified what Section 30(2)(b)(ii) actually does. It said that when a dissenting financial creditor holds a security interest, that interest gets converted from the asset itself to the value of the asset, payable in money. The creditor cannot enforce the security directly — it cannot seize the property — but it is entitled to receive the monetary equivalent of what it would have got in liquidation.

This is a crucial distinction. The resolution plan does not extinguish the security interest; it transforms it into a claim for cash. And that cash claim must be at least as much as the creditor would have recovered if the company had been liquidated.

Why the larger bench is necessary

Given the contradiction between India Resurgence ARC and the two three-judge bench decisions, the Supreme Court referred the core question to a larger bench. The question is precise: Does Section 30(2)(b)(ii) entitle a dissenting financial creditor to be paid the minimum value of its security interest?

The answer will determine whether secured creditors can rely on their contractual priority when a resolution plan is approved by a majority. If the answer is yes, then every resolution plan must respect the hierarchy of claims — first charge creditors get paid first, up to the value of their security. If the answer is no, then majority rule can override contractual security, and a dissenting creditor can be forced to accept less than its liquidation entitlement.

For the banking sector, this is existential. Banks lend billions of rupees based on the strength of their security. If that security can be diluted by a resolution plan approved by other creditors, the entire foundation of secured lending is shaken.

For the resolution process, the stakes are equally high. If dissenting creditors must always be paid their liquidation value, resolution plans become harder to structure. The majority loses some of its power to bind the minority. But if dissenting creditors can be forced to accept less, the minority loses its protection against being steamrolled.

THE QUESTION: Until the larger bench decides, every resolution plan that treats dissenting secured creditors equally with unsecured creditors carries the risk of being challenged — and potentially overturned.

The Supreme Court did not decide the case. It did something rarer: it admitted that the law was not clear enough to decide, and sent the question to a larger bench for an answer that will shape Indian insolvency law for years to come.

The bank's Rs. 243 crore question remains unanswered.