TMI Blog2019 (1) TMI 1506X X X X Extracts X X X X X X X X Extracts X X X X ..... MEMBER (JIDICIAL) MS. SAROJ RAJWARE, MEMBER (TECHNICAL) For The Applicant : Bishwajit Dubey, Adv., Ms. Ruchi Chaudhary, Aditya Marwah, Rahul Agarwal, Advocates, Anand Grover, Sr. Adv., Amit Mishra, Shivam Pandey, Samyak Gangwal and Yash Tandan, Advocates For The Respondent : Sanjay Bhatt and Ms. Janhvi Bhasin, Advocates ORDER 1. Sh. Bishwajit Dubey alongwith Aditya Marwah, Advocate for the IDBI Bank other lenders, Ms. Janhvi Bhasin alongwith Sh. Saujan Bhatt, Advocate for the IRP and Sh. Yash Tandon, advocate for the Home Buyers are present. 2. Common order pronounced in both CA 223/2018 CA 266/2018 in the open Court. 3. The Members that constitute this Bench expressed difference of opinion on the point pertaining to procedure for determining voting share for passing Resolutions in the CoC that comprise multiple class of Financial Creditor during the CIRP. 4. Hence, the case is referred to the Hon ble President for hearing on the aforesaid point by one or more or other Members of the Tribunal under section 419(5) of the Companies Act read with Rule 60 of the NCLT rules. 5. The registry of this Tribunal is directed to address letter to the Regis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome Buyers as a class of creditors and identified three IRPs, who could act as an Authorized Representative of the Home Buyers in the COC in consonance with section 21(6A)(b) of the IBC, Regulation 6(2)(bb) and Regulation 4A of the Insolvency Bankruptcy Board of India (Insolvency Process for Corporate Persons) Regulations, 2016. e) Mr. Kuldeep Verma, Insolvency Professional was appointed as Authorized Representative for the home buyers as he secured the highest votes. However, only 9,500 home buyers out of 24,000 home buyers voted in the appointment process of Mr. Kuldeep Verma i.e. the Authorized Representative. The appointment of Mr. Kuldeep Verma as Authorized Representative was confirmed by this Tribunal vide its order dated 05.09.2018. f) It is stated by the IRP that till date, two COC meetings have been convened. The first COC meeting was on 12.09.2018 and the second meeting was on 17.10.2018. 3 . (a) In the first meeting, six voting items were placed by the IRP before the COC, out of which four voting items have been held to be rejected by the COC on account of not having met the minimum voting threshold under the IBC, whereas two voting items were deferred. The t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Approval of related party transactions- Section 28 Item 66% 37.8% Rejected 5. Acceptance of resignation of 7 Independent Directors - Section 28 Item 66% 28.6% Rejected 6. Approval of Form G (Invitation for expression of interest) 51% 53.3% Passed 4. By virtue of I B Code Second Amendment Act, 2018 and the judgment of Hon ble Supreme Court of India in the matter of Chitra Sharma (supra), the home buyers are considered as Financial Creditors and included in the COC. As per the Regulation 25 of the CIRP Regulations, 2016, members of COC may vote on a subject during the meeting itself or by way of electronic means within a period of 24 hours of circulation of the minutes of the meeting by the RP. 5. Regulation 25(6) provides that the Authorized Representative shall circulate minutes of the meeting received under Regulation 25(5) to the creditors in class and announce the voting window at least 24 hours before the window opens for voting instructio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 75% * 9. It is stated that the Lenders, Fixed Deposit Holders and Home Buyers have a total voting percentage of 41.8%, 0.01% and 58.1% respectively as on date. The total voting share of the home buyers as a class is 58.1%. However, only a small number of home buyers cast their votes even with regard to the appointment of the Authorized Representative. Even in the 1st COC meeting, the total voting percentage of the home buyers present is 17.18%. 10. It is stated that the voting items being tabled before the COC are not being passed since the requisite threshold is not being met. If large number of home buyers failed to exercise their vole, it is not possible to have a requisite vote share required under the various provisions of I B Code. 11. It is stated by the IRP that the CIRP came to standstill, because of the failure to meet the minimum voting threshold. Even the resolution like the appointment of Insolvency Professional as Resolution Professional is incapable of being passed by the COC in the present circumstances. Among the lenders, 41.7% voting share was cast in both the COC meetings. In case of appointment of Mr. Vijaykumar V. Iyer a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rate insolvency resolution process. If there is a resolution applicant who can continue to run the corporate debtor as a going concern, every effort must be made to try and see that this is made possible........... 15. The Financial Creditor also referred to the order of Principal Bench of the Hon ble NCLT, New Delhi dated 29.09.2018 in Nikhil Mehta Sons (HUF) v. AMR Infrastructure Ltd. [2018] 150 SCL 123, wherein it is held: 36. We have already opined that the court should lean against an interpretation which makes a statue unconstitutional and unworkable and adopt such an interpretation which makes it constitutional and workable and help in achieving its object. The object of the Code is to promote resolution and to discourage liquidation. It is seen that an interpretation which sustains the constitutional validity must be preferred over the one which result in declaring it as unconstitutional. It is not impermissible to add certain words which were not contained in the statute to achieve the object of enactment. In that regard reliance may be placed on the observations made by the Supreme Court in the case of Directorate of Enforcement v. Deepak Mahajan (1994) 3 SS ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as follows: that a member present and voting may remain neutral, indifferent, unbiased, or impartial not engaged on either side. One is not supposed to write anything except putting yes or no either in favour of or against the proposition. A vote cast without indicating the mind of the voter either for or against the resolution is no voting at all. So, in construing whether a resolution is passed by three-fourths majority present and voting, what is to be considered in calculating the majority is not the number of persons present and voting, but the number of valid votes includes only votes indicating the mind of the voter for or against the resolution. 21. It is contended by the Home Buyers Association, the approach adopted by the IRP will militate against the very object and purpose of the Code. It is stated that in a situation like the present one wherein thousands of common people have invested their life s savings to procure a home for themselves, the Corporate Debtor s liquidation would be all the more undesirable. The Hon ble Supreme Court in its decision dated 09.08.2018 while reviving the CIRP against the Corporate Debtor in Chitra Sharma s case (supra), ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the voting percentage of the home buyers. The IRP stated that the Adjudicating Authority may interpret the I B Code and CIRP Regulations in the light of the submission made in the pleadings. 27. It is the contention of the lenders (Bankers) that the suggestion given by the home buyers that they should be treated as a separate class and any decision taken by any number of home buyers within that class should be considered to be the decision of the whole class ought not to be accepted for the following reasons: a. This suggestion on behalf of the home buyers is patently arbitrary, discriminatory, unfair and detriment to other members of COC; b. Presently the home buyers have a total voting percentage of 58.1%, and assuming that if we were accept the submission of homebuyers, it would mean that even if one home buyer votes in favour and other 23,999 home buyers abstain, it would be considered as that the entire 58.1% of COC which consists of home buyers is voting in favour of the resolution. Attributing such a minority decision to be considered as 58.1% of COC decision and thereby bulldozing the same on the other creditors who have actually voted post analysing the pros ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... editors and section 22(2) must be regarded as directory in nature in case COC is comprised 100% of class of creditors Real Estate (Commercial Residential). Even otherwise we have already opined that the class of creditor like Real Estate (Commercial and Residential) are distinct that the other class of creditors which includes well organized financial institutions like Bank, Financial Companies and non-banking financial companies etc. (Emphasis Supplied) 28. The present total voting percentage of home buyers is 51.8%. It the suggestion of the home buyers is accepted, it would mean, even if one home buyer votes in favour and another 23,999 home buyers abstained, it would be considered as that the entire 58.1% of COC which consist of home buyers is voting in favour of the-resolution. It is contended that attributing such a minority decision to be considered as 58.1% of COC decision and thereby bulldozing the same on the other creditors, who have actually voted post analyzing the pros and cons of approving/rejecting a particular agenda item/ resolution is patently illogical and arbitrary. 29. It is further contended that any decision taken by the creditors on the voti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the said decision, which is as follows: 38. When the principles laid down in the aforesaid paragraphs as approved by Hon ble Supreme Court are applied to the provisions of section 22(2) and other cognate provisions we find that threshold voting share for decision of the committee of creditor by sixty six per cent would not he mandatory in the cases of class of creditors where the prospective buyers of Real Estate (Commercial Residential) alone constitute the COC. ft has been seen that in such cases the total polled voting share is very small which in the present case is 52.78 per cent. Therefore we would say that in case of deadlock the preference cane be given to the decisions taken by the highest percentage in the Committee of Creditors and section 22(2) must be regarded as directory in nature in case COC is comprised 100% of class of creditors Real Estate (Commercial Residential). Even otherwise we have already opined that the class of creditor like Real Estate (Commercial Residential) are distinct than the other class of creditors which includes well organised financial institutions like Bank, Financial Companies and non-bunking financial companies etc. Their re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... voting shares of the Financial Creditors , including the approval of the Resolution Plan . Sub-section (8) of section 21 being mandatory in nature, any plan which has not been approved by the Committee of Creditors with voting shares of seventy-five per cent, cannot be approved by the Adjudicating Authority as it will be against the provisions of section 30(2)(e) of the I B Code which stipulates that the Resolution Plan does not contravene any of the provisions of the law for the time being in force. Less than seventy-five per cent of the voting shares of the Committee of Creditors in the matter of approval of the Resolution Plan being against the provisions of clause (e) of sub-section (2) of Section 30, it cannot be approved. 35. Therefore, in the above said decision it is held that section 21(8) of the Code is mandatory. 36. Therefore, in view of the judgment of Hon ble Principal Bench in Nikhil Mehta Sons (HUF) s case (supra) the requirement of 66% of voting is only directory, in respect of section 22(2) of the Code, whereas in view of the decision of Hon ble NCLAT the requirement of 75% of voting prior to amendment and post amendment 66% of voting per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lesh Dhairyawan v. Mohan Balkrishna Lulla [2016] 3 SCC 619, which is as follows:- 31. The aforesaid two reasons given by me, in addition to the reasons already Indicated in the judgment of my learned Brother, would clearly demonstrate that the provisions of section 15(2) of the Act require purposive interpretation so that the aforesaid objective/purpose of such a provision is achieved thereby. The principle of purposive interpretation of purposive construction is based on the understanding that the court is supposed to attach that meaning to the provisions which serve the purpose behind such a provision. The basic approach is to ascertain what is it designed to accomplish? To put it otherwise, by interpretative process the court is supposed to realise the goal that the legal text is designed to realise. As Aharon Barak puts it: 33. We may also emphasise that the statutory interpretation of a provision is never static but is always dynamic. Though the literal rule of interpretation, till some time ago, was treated as the golden rule , it is now the doctrine of purposive interpretation which is predominant, particularly in those cases where literal interpret ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... presentation would be there in all the COC meetings. 44. The proposal of the home buyers that any decision taken by any number of the home buyers within that class, should be considered to be the decision of the whole class is unjust for the simple reason that the voice of the home buyers that voted cannot be treated as the voice of home buyers that abstained from voting. The votes of the abstained persons can never be treated as in favour or against a particular resolution more so in favour of the votes poled in a particular class. If votes poled in a particular class is taken as it represent the view of that class of creditors that abstained also is nothing but imposing the view of one creditor on the another and it would also disturb the procedure laid down in section 21(6B) of I B Code r/w Regulation 16A(7) of CIRP Regulations. Dissenting financial creditor is optinel in Regulation 2(f) of Insolvency Resolution Regulations, 2016, which reads as under: dissenting financial creditor means a financial creditor who voted against the resolution plan or abstained from voting for the resolution plan, approved by the committee. No doubt the above said definition refers onl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... consideration without looking into the threshold limit provided under the various provisions of the I B Code, except for the purpose of withdrawal of the petition, the approval of the resolution plan, and liquidation i.e. under section 12A, 30(4) and 33(2) respectively, so that CIRP would continue for the time being and in the meanwhile Central Government may bring amendment to the relevant provisions of I B Code and CIRP regulations prescribing the procedure to be followed in determining the voting share for passing various resolutions where COC comprise of Real Estate class of creditors 50% or more and when there is dead lock in passing the resolutions, or else the CIRP which remained static continue to be the same not only in this case, but in the cases of similar nature where Real Estate/Home Buyers as a class that comprise majority per cent voting share abstain from voting. OPINION OF LP. MEMBER (TECHNICAI.) 48. I agree that it is impossible to meet the requirement of 66% affirmative votes for any resolutions where Home Buyers are in majority, due to their high level of non-participation in COC and there is a need to give purposive interpretation to provisions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng scattered they may not be technically literate to vote on-line or even have access to internet and may also not be aware of the consequences of non-attendance and non-voting in the COC meetings. The interests of Home Buyers would be protected only if their total voting share is taken into consideration separately. Home Buyers have common cause, common interests common goals being a homogenous group among themselves. In order to protect the interest of Home Buyers, I am of the view that they are to be treated as a separate class in their voting rights. Thus, if the Home Buyers are voting in favour or against the resolution, it should be taken that the voting pattern is representative of the class as a whole and the class is taken to have voted in the same fashion proportionately. By giving proportional representation within their voting share, it would be ensured that the resolutions of COC can be approved/rejected on the basis of laid down threshold percentages and CIRP is not halted. 51. In order to protect the rights of the Home Buyers, I am of the view that the Home Buyers must be treated as a separate class with En-block voting rights. The decision taken by the number o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ortant/crucial decisions will still fail u/ss. 12A, 30(4) and 33(2), bringing CIRP to a halt at these crucial stages. Therefore, the lasting solution to the problem of dead lock can only be found by treating Home Buyers as a class and their voting pattern taken with reference to total voting share of the class, to reflect the will of the class. 56. The Members that constitute this Bench expressed difference of opinion on the point pertaining to procedure for determining voting share for passing resolutions in the COC that comprise multiple classes of Financial Creditors during CIRP. 57. The following is of the opinion of Member Judicial, Bikki Raveendra Babu:- That in case where the COC comprise Real Estate class of creditors upto 50 per cent of voting share or more and when there is a dead lock in passing the resolutions, the highest number of voting share in favour of resolution has to be taken into consideration without looking into the threshold limit provided under the various provisions of the I B Code, except for the purpose of withdrawal of the petition, the approval of the resolution plan, and liquidation i.e. under sections 12A, 30(4) and 33(2) respectively, s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te, to be taken as a representative sample of the class as a whole. In the instant case, total Home Buyers are about 24,000 and nearly 10,000 have participated in voting. Although it constitutes 17% of voting share out of 58.1%, yet 10,000 Home Buyers out of 24,000 can be considered a representative sample. Therefore, it is proposed that the Home Buyers that voted must be at least 15% or more to be considered as representative of the class. I also recommend that alternative/fail safe methods need to be evolved to increase the participation of Home Buyers. To get over technical illiteracy on e-voting access to internet, option of postal ballots may also be used. In the case on hand, even if all Banks 17% of Home Buyers votes in favour of Resolution Plan, it will still not sail through as it would not receive mandatory voting percentage of 66%. Therefore, required important/crucial decisions will still fail u/s. 12A, 30(4) and 33(2), bringing CIRP to a halt at these crucial stages. Therefore, the lasting solution to the problem of dead lock can only be found by treating Home Buyers as a class and their voting pattern taken with reference to total voting share of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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