The Supreme Court on Friday cleared the path for distribution of proceeds from the Rs. 4,350-crore bid submitted by Baba Ramdev’s Patanjali Ayurveda for takeover of Mumbai-based edible oil maker Ruchi Soya.
Patanjali Ayurveda, which had emerged as the successful bidder, is paying Rs. 4,134 crore to the financial creditors including Singapore’s DBS Bank, the dissenting financial creditor, as against admitted claims of Rs. 8,398 crore.
Its resolution plan approved by the Committee of Creditors (CoC) was confirmed by the National Company Law Tribunal in July this year. Ruchi Soya, whose leading brands include Nutrela, Mahakosh, Sunrich, Ruchi Star and Ruchi Gold, has a total debt of about Rs. 12,000 crore. The company was admitted for the Corporate Insolvency Resolution Process (CIRP) on December 8 after its two creditors — Standard Chartered Bank and DBS Bank —had moved the NCLT, Mumbai.
Ruchi Soya, which owes around Rs. 33 crore to Standard Chartered and about Rs. 150 crore to DBS Bank, figured in the RBI’s second list of 28 defaulters.
A Bench led by Justice RF Nariman refused to stay implementation of the resolution plan. However, it said that the fund claim made by DBS Bank will be kept aside in an escrow account.
DBS Bank, which had voted against Patanjali’s resolution plan, had appealed against NCLAT’s decision of allowing distribution of the bid amount without taking into account the value of security held by secured creditors.
DBS said that it was entitled to a minimum amount as payable in the event of ‘liquidation’ of the Ruchi Soya, which will be close to 90% of its exposure.
According to DBS Bank, it had lent Rs. 242 crore to Ruchi Soya and had a sole first charge over some of the fixed assets of the debt-ridden firm at Baran, Guna, Daloda, Gadarwara, Mumbai and Kandla. If it were to enforce its security, DBS would recover 90% of its exposure to Ruchi Soya, senior counsel CS Vaidyanathan told the apex court.
The appellate tribunal ignored the applicability of the amended Section 30 of Insolvency and Bankruptcy Code (IBC) that says that financial creditors which vote against the resolution plan must at least get the amount they would’ve got in the event of liquidation of the insolvent company, he argued, while seeking stay on the distribution of proceeds by CoC, which gave the bank a 49% recovery — on a par with all secured creditors irrespective of their security value.
“The Supreme Court clarified that the resolution applicant should proceed with implementing the plan thereby making it clear that the appeal (by DBS) would in no manner affect the implementation of the RP, Nakul Sachdeva, Partner L&L Law Offices, appearing for the CoC,” said.
The NCLAT had also last month dismissed DBS Bank’s plea, saying a secured creditor cannot dissent with the resolution plan just to get more funds than other creditors and claim preference over other creditors.
The appellate tribunal said, if a financial creditor does not accept the feasibility and viability of the plan and holds it as discriminatory, it has right to dissent during the voting and can be treated as a ‘dissenting financial creditor’.
“A secured creditor cannot claim preference over other secured creditor at the stage of distribution out of the resolution plan on the ground of dissenting or assenting secured financial creditor, otherwise the distribution would be held to be arbitrary and discriminatory,” said NCLAT.
Based on the pro-rate distribution approved by the CoC, DBS would receive Rs. 119 crore, as against its total claim of Rs. 243 crore.
But since DBS Bank has a secured, sole first charge over defined assets of Ruchi Soya, and its security structure is superior compared to other financial creditors, it ought to be treated differently.