Dissenting Secured Creditors Entitled To Minimum Payment Based On Security Value: NCLT Mumbai

The National Company Law Tribunal (NCLT), Mumbai, on 7 October held that a dissenting financial creditor is entitled to a minimum payment equivalent to the liquidation value of its security interest, and the Committee of Creditors (CoC) cannot cap this entitlement at the total value of the resolution plan.

A Bench of Technical Member Prabhat Kumar and Judicial Member Sushil Mahadeorao Kochey considered SBI's challenge to a CoC resolution that capped the bank's payment at the total resolution plan value instead of its minimum entitlement under the Insolvency and Bankruptcy Code (IBC).

Relying on the National Company Law Appellate Tribunal's ruling in HDFC Bank Limited v. Pratim Bayal, Resolution Professional of Birla Tyres Ltd. & Ors, the Tribunal observed that “the dissenting financial creditor is entitled for an amount which is not less than the amount paid under Section 53(1).”

The insolvency proceedings arose from the resolution of a real estate company developing four projects under development agreements with cooperative housing societies. SBI, which held a 21.37% voting share in the CoC and a security interest in the RNA Address project, voted against the resolution plan submitted by a consortium of Authum Investment & Infrastructure Limited and Cosmos Prime Projects Limited.

SBI challenged the CoC resolution, arguing that it could not limit dissenting financial creditors' payments to the resolution plan value instead of their minimum entitlement under Section 53 of the IBC. Relying on DBS Bank Ltd. v. Ruchi Soya Industries Ltd., 2024 INSC 14, the bank argued that a dissenting secured financial creditor has an individually enforceable monetary entitlement equivalent to the value of its security interest, which the CoC cannot dilute through its commercial wisdom.

The Tribunal distinguished the Supreme Court's ruling in India Resurgence ARC Pvt. Ltd. v. Amit Metaliks Ltd., which concerned the amendment to Section 30(4) of the IBC allowing the CoC to consider the value of a secured creditor's security interest while approving a resolution plan.

It held that India Resurgence applied more appropriately to the distribution of proceeds among assenting financial creditors and could not govern a dissenting secured creditor's entitlement. It relied on Ruchi Soya, Jaypee Kensington and Committee of Creditors of Essar Steel India Limited, and held that the CoC could not undermine the statutory minimum payment due to a dissenting creditor.

The Bench also held that the amendments to Section 30(2), which came into force on 26 May 2026, did not apply because the CoC had approved the resolution plan before that date.

Accordingly, the NCLT directed that the CoC resolution be read down to the extent that its cap on SBI's minimum payment conflicted with Section 30(2)(b) of the IBC.