Creditor with ₹12 crore security offered ₹2 crore in insolvency plan — Supreme Court says it's okay

A company was owed ₹12 crore. The insolvency plan offered it ₹2 crore. The Supreme Court just said — that's perfectly legal.

For a secured creditor who had bought the rights to a loan backed by assets worth twelve crore, the offer of two crore felt like a haircut that had gone too far. The resolution plan's signature page, carrying the stamp of approval from 95.35% of the Committee of Creditors, lay heavy on the file. The court's answer was simple: that vote is the law.

When the committee voted 95% in favour

The company was VSP Udyog Private Limited, undergoing the Corporate Insolvency Resolution Process (CIRP — the formal bankruptcy proceeding under the Insolvency and Bankruptcy Code). Among its creditors was India Resurgence ARC Private Limited, a company that held the rights of a secured lender called Religare Finvest Limited. Its voting share in the Committee of Creditors (CoC — the group of lenders that decides the company's fate during insolvency) was just 3.94%.

Amit Metaliks Limited proposed a rescue plan. The CoC voted at its 14th meeting on 31 July 2020. The result: 95.35% said yes. India Resurgence ARC was one of the dissenters. Its objection was simple. It held a security interest (a legal claim over specific assets of the company) worth about ₹12 crore. The plan offered it only ₹2 crore. That, it argued, was illegal.

The appellant's core contention was that the plan violated the amended Section 30(4) of the IBC by failing to consider the priority and value of its security interest. It argued that the CoC was legally bound to give a dissenting secured creditor the full value of its security — that the amendment created a judicially enforceable right for individual creditors to demand higher payment based on security value.

The procedural journey: three courts, one outcome

India Resurgence ARC first took its case to the National Company Law Tribunal (NCLT — the special court that handles insolvency cases), Kolkata Bench. On 20 October 2020, the NCLT approved the plan, finding it compliant with mandatory requirements under the law. The tribunal's order sheet reflected no infirmity in the distribution scheme approved by the overwhelming majority of creditors.

The appellant then appealed to the National Company Law Appellate Tribunal (NCLAT — the appeals court for insolvency matters) in New Delhi. On 2 March 2021, the NCLAT dismissed the appeal, holding that distribution considerations fall within the CoC's commercial wisdom and are not subject to judicial second-guessing.

Finally, it reached the Supreme Court. The bench, comprising Justice Vineet Saran and Justice Dinesh Maheshwari, heard Civil Appeal No. 1700 of 2021. On 13 May 2021, the court dismissed the appeal. The operative order was a single line: "This appeal fails and stands dismissed."

The courtroom fell silent as the brief order was read. The file, carrying the weight of months of litigation, was closed. The appellant had argued that the plan ignored the value of its security interest. The court held otherwise.

Why 'may' does not mean 'must'

The court held that the amendment to Section 30(4), introduced by Section 6(b) of the IBC Amendment Act, 2019, provides discretionary guidelines for the CoC, not mandatory requirements that individual creditors can enforce through litigation. The word "may" was deliberate. It gives the CoC more things to think about — but it does not create a right for every creditor to demand a higher payment based on the value of its security.

The judgment drew on its own earlier ruling in the Essar Steel case (Committee of Creditors of Essar Steel India Limited v. Satish Kumar Gupta and Ors. — (2020) 8 SCC 531), where the Supreme Court had already established that the commercial wisdom of the CoC is paramount. Once the mandatory requirements under Section 30(2) of the IBC are met — including minimum payments to operational creditors and dissenting financial creditors — judicial review cannot stretch to second-guess the quantum of distribution.

The court was clear: every dissatisfaction of a creditor or stakeholder does not partake the character of a legal grievance and cannot be taken up as a ground of appeal. In plain English: being unhappy with the deal you got is not the same as having a legal right to challenge it.

The bench also cited its ruling in Jaypee Kensington Boulevard Apartments Welfare Association and Ors. v. NBCC (India) Ltd. and Ors., decided just weeks earlier on 24 March 2021, to reinforce the principle that the CoC's commercial wisdom is not subject to judicial review on the merits of the distribution. The smell of fresh print from the Jaypee judgment still lingered in the courtroom as the bench applied its logic to the case at hand.

What a dissenting creditor actually gets

The judgment also settled what a dissenting secured financial creditor is entitled to. The answer: the amount specified under Section 30(2)(b) of the IBC — which is the minimum liquidation value (what the creditor would get if the company were broken up and sold piece by piece), not the full value of the security interest.

The court held that the right to enforce a security interest, if available, is conditioned by the extent of value receivable under the plan, not the full value of the security. In other words, a secured creditor cannot say: "My security is worth ₹12 crore, so the plan must give me ₹12 crore." The plan can give less, as long as it treats all secured creditors proportionately.

And that was the key test the court applied: the payment to India Resurgence ARC was proportionate to what other secured financial creditors received. The plan offered everyone in the same class a similar percentage of their claims. That, the court said, was fair and equitable treatment.

The court also referred to Section 53(1) of the IBC, which governs the distribution of assets in liquidation, and Section 52(1)(b), which deals with the rights of secured creditors in liquidation. These provisions, the court noted, establish a hierarchy of claims that the resolution plan must broadly respect — but they do not guarantee that each secured creditor will recover the full value of its security.

The business decision that courts will not touch

The Supreme Court's reasoning rested on a fundamental principle of the IBC: the resolution plan is a business decision, not a judicial one. The CoC, composed of financial creditors with the most skin in the game, is best placed to decide whether a plan is viable. Courts are not equipped to conduct a "quantitative analysis" of what each creditor should get.

The bench cited its own rulings in K. Sashidhar v. Indian Overseas Bank and Ors. — (2019) 12 SCC 150 — and Maharashtra Seamless Limited v. Padmanabhan Venkatesh and Ors. — (2020) 11 SCC 467 — to reinforce the point. In K. Sashidhar, the court had held that the adjudicating authority's role is limited to examining whether the resolution plan meets the mandatory requirements of Section 30(2). In Maharashtra Seamless, the court had clarified that the CoC's decision on the viability of a plan is a business judgment that cannot be substituted by a court's view.

The court also referred to Regulation 38 of the CIRP Regulations, issued by the Insolvency and Bankruptcy Board of India (IBBI — the regulator overseeing insolvency processes), which provides that a resolution plan must specify the amount payable to each class of creditors. The court noted that this regulation, read with Section 30(4), gives the CoC flexibility in determining the distribution — as long as the plan is fair and equitable to all stakeholders.

The implications for future insolvency cases

This judgment sends a clear signal to secured creditors participating in insolvency resolutions: your security interest does not guarantee you full recovery. The CoC's commercial wisdom, exercised through a majority vote, will prevail. A dissenting creditor with a small voting share — here, just 3.94% — cannot block a plan or demand special treatment based on the value of its collateral.

The ruling also clarifies the scope of the Section 30(4) amendment. The use of "may" was not a drafting oversight. It was a deliberate choice by Parliament to give the CoC flexibility, not to create a new weapon for litigation. Creditors who believe they deserve more must convince the majority — not the courts.

For resolution professionals and the CoC, the judgment provides comfort that approved plans will not be easily undone by individual creditors seeking better terms. As long as the plan meets the mandatory requirements of Section 30(2) and treats creditors in the same class proportionately, the distribution scheme is a business decision that courts will respect.

The appeal was dismissed. India Resurgence ARC walked away with ₹2 crore on a ₹12 crore security. The file, now closed, carried the weight of a legal principle that will shape countless insolvency resolutions to come.

THE PLAY: A dissenting secured creditor cannot demand the full value of its security interest — it is entitled only to the minimum liquidation value, and the CoC's business decision, approved by a majority, will not be second-guessed by courts.

The judgment ended where it began: with a creditor holding paper worth ₹12 crore, and a plan that gave it ₹2 crore — and the law saying that is enough.