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TMI Blog2019 (2) TMI 1043X X X X Extracts X X X X X X X X Extracts X X X X ..... s Ltd. (for short "IIL") having its registered office at Pune, Maharashtra. 4. The NCLAT affirmed the order passed by the National Company Law Tribunal, Mumbai Bench (for short "NCLT Mumbai") recording rejection of the resolution plan concerning IIL and directing initiation of liquidation process under Chapter III of Part II of the I&B Code. As regards KS&PIPL, the NCLAT reversed the decision of the National Company Law Tribunal, Hyderabad (for short "NCLT Hyderabad") which had approved its resolution plan and instead remanded the proceedings to NCLT Hyderabad for initiation of liquidation process in terms of Section 33 and 34 of the I&B Code. 5. The NCLAT held that as, in both the cases, the resolution plan did not garner support of not less than 75% of voting share of the financial creditors constituting the Committee of Creditors (for short "CoC") the same stood rejected and thereby warranted initiation of liquidation process of the concerned corporate debtor, namely, KS&PIPL and IIL. 6. For considering the grounds of challenge in the respective appeals, we deem it appropriate to advert to the relevant facts concerning the respective corporate debtor. 7. KS&PIPL was incorpor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is meeting. As the statutory period of 180 days for completion of CIRP was to expire, an application was filed before the NCLT Hyderabad for extending the time by a further 90 days. Thus, the NCLT Hyderabad, on 27 th July, 2017, extended further time by 90 days starting from 9 th August, 2017. The sixth meeting of the CoC was held on 24 th August, 2017, when the corporate debtor submitted an expression of interest from AREA Group of Companies, Chandigarh to infuse Rs. 150 Crore in the form of debentures, subject to getting a firm approval from the lenders. The said proposal was circulated during the meeting which concluded with the resolution that the same be placed along with the final report of SBI Capital Markets Limited, which was still awaited. The seventh meeting of the CoC was held on 26th September, 2017 in which various options were deliberated but the discussion remained inconclusive. In the eighth CoC meeting, held on 16 th October, 2017, it was agreed that the resolution plan submitted by the corporate debtor should provide for monitoring and supervision by the resolution professional, in case the plan was approved by the CoC. The Indian Bank, which had 22.33% of voting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ting share of dissenting lender Banks was 26.97%. Maharashtra Bank, having 6.36% voting share, had not either approved, rejected or abstained from voting but had conveyed that they remained open to consider the resolution plan. The fact remains that the proposed resolution plan did not garner approval of not less than 75% of voting share of the financial creditors until the resolution professional (IRP) filed an affidavit before the adjudicating authority (NCLT Hyderabad) on 3rd November, 2017, submitting the outcome of the 9 th CoC meeting. The Managing Director of the corporate debtor (KS&PIPL) appeared before the adjudicating authority (NCLT) on 6th November, 2017, and also filed a memo on 17 th November, 2017, inter alia submitting that for the financial creditor who chose not to participate in the voting, the votes and the majority be counted without their vote. In that eventuality, the percentage of financial creditors who chose to participate and who approved of the resolution plan would work out to 78.63% and therefore, it can be assumed that the resolution plan has been approved by the CoC. The NCLT Hyderabad vide judgment dated 27th November, 2017, eventually, allowed the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the judgment passed by the NCLT Mumbai dated 23 rd November, 2017/8th December, 2017, and for directing the Union of India to revive the corporate debtor (IIL) and save it from liquidation by dispensing with the 8% shortfall for touching the criteria of 75% of consent of CoC for the approval of revival as per the provisions of the I&B Code. The High Court rejected the writ petition filed by the workers' union on the ground that they had an alternative and efficacious remedy against the decision of the Tribunal. In other words, the Special Leave Petition primarily questions the decision of rejection of the proposed resolution plan in respect of the corporate debtor (IIL). 9. As regards the corporate debtor (IIL), the relevant facts are as follows. The said corporate debtor had suffered losses. As a result, it had proposed to its lender Bankers for Corporate Debt Restructuring (for short "CDR"). The company was referred to CDR in September, 2013 by 19 banking entities and it invited a consortium, led by Central Bank of India. The lenders' forum approved the restructuring plan of the company on 24th June, 2014. ICICI Bank filed an Insolvency and Bankruptcy application under the I&B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l creditors be directed to disclose on oath reasons/basis for, or the decision making process involved in, voting against the resolution plan and a declaration that the dissenting financial creditors voted with malicious intention of liquidation and hence, their votes ought to be ignored. The workers' union of the corporate debtor (IIL) had filed an interim application, opposing liquidation of the company. The resolution applicant had also filed an application to allow it to submit a revised resolution plan and to invite a fresh vote thereon albeit after the time earlier envisaged for obtaining shareholders approval. According to the appellants in the second set of appeals, NCLT did not call for the response of the opposite parties on the concerned applications and instead proceeded to pass the impugned order rejecting the applications and directing initiation of liquidation proceeding against the corporate debtor. The appellants in the leading appeal concerning the corporate debtor (IIL) filed an appeal before the NCLAT against the decision of the NCLT, Mumbai. This appeal was heard along with the appeals concerning another corporate debtor (KS&PIPL) and disposed of together by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ditionally, the requirement of percentage of votes of the financial creditors stood reduced to 66% of voting share which, in the present case, has been fulfilled on account of the approval given by 55.73% in the meeting convened on 27th October, 2017, and followed by in-principle approval conveyed via email on 30th October, 2017, by Oriental Bank of Commerce, having 10.94% voting power. In effect, this argument proceeds on the assumption that the amendments to the Code brought into force w.e.f. 23 rd November, 2017 and in particular on 6th June, 2018, would have retroactive effect, as is clear from the legislative intent behind the said amendments. The said amendments are made applicable from the inception and to pending proceedings also because it is to substitute the original provision as was applicable on the date of the resolution dated 27th October, 2017, and filing of affidavit by IRP before the adjudicating authority. To buttress this argument, reliance has been placed on the exposition in Gottumukkala Venkata Krishamraju Vs. Union of India (2018) SCC Online SC 1386- Paragraphs 13-16, Government of India Vs. India Tobacco Association (2005) 7 SCC 396 Paragraphs 1416, 24, 26& ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o contended that the adjudicating authority (NCLT) as well as the appellate authority (NCLAT), while approving or rejecting the resolution plan, is duty bound to exercise a judicious mind and be alive to the facts and circumstances of the specific case before it and the socio- economic benefit considering the favourable opinion noted by the resolution professional in his affidavit, that there was every possibility of reviving the corporate debtor. Even as per the report submitted by M/s. Atlas Financial Research & Consulting Private Limited regarding a thorough Techno Economic Viability study conducted in respect of the corporate debtor (KS&PIPL), it has been noted that the company was technically feasible and economically viable. The corporate debtor was facing a financial crisis due to abrupt and unilateral stoppage of operations in the working capital loan account and the proposed resolution plan fulfilled all the eligibility criteria for its approval under the provisions of the I&B Code. Furthermore, the dissenting financial creditors having failed to offer any reason whatsoever for rejecting the resolution proposal, it must follow that they did not do so in good faith but with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l of the corporate debtor and maximisation of the value of assets. In the present case, contends learned counsel, the only plea taken by the dissenting financial creditors before the adjudicating authority (NCLT), was that they had taken a commercial decision and it was not open to judicial scrutiny. Even if it is a commercial decision, contends learned counsel, it must fulfill the test of a reasonable and fair approach to be supported by tangible reasons. In the absence of reasons, the adjudicating authority (NCLT) must exercise its jurisdiction to ascertain whether the exercise of power by the CoC is reasonable and in conformity with the purpose of the Code. If the resolution plan is ex facie viable and yet the dissenting financial creditors reject the same, such exercise of power would be subversive of the policy of the Code, requiring intervention by the adjudicating authority (NCLT). Whereas, such a case would imply a duty on the CoC to exercise its power to approve the plan. To counter the defence of the dissenting financial creditors regarding a commercial decision, reliance was placed on Padfield and Others Vs. Minister of Agriculture, Fisheries and Food (1968) 2 WLR 924 an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Parliament was to cure the mischief that the high threshold was causing; and by reducing it, Parliament intended to encourage revival of the corporate debtor and maximisation of the value of assets and to discourage liquidation resulting in closure of the functioning company on which many stakeholders depended, such as its workers. With regard to the objection to the locus of the appellant being the former Chairman and Managing Director of the corporate debtor, it is contended that the same is raised for the first time, and in any case, cannot be countenanced in view of the express provision contained in Section 61 of the I&B Code and moreso because the appellant had initiated proceedings by filing an application before the adjudicating authority (NCLT) and the appellant, being the shareholder, had reason to insist for revival of the corporate debtor instead of its liquidation. As regards the objection about the eligibility of the appellant as a person acting jointly or in concert with the corporate debtor in terms of Section 29A of the I&B Code, it is contended that even this objection was being taken for the first time. Notably, Section 29A of the I&B Code came into force o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... I&B Code is mandatory. They submit that the I&B Code has been enacted after the experience of the earlier dispensations. There has been paradigm shift in adopting the new regime regarding the timelines to be observed by all concerned at every stage as predicated in the Code. Be it for the resolution process or liquidation process. Both these processes are intended to be disposed of speedily and in a time-bound manner. The initial time limit provided to revive the company is 180 days from the date of admission of the petition and extendable by 90 days. The outer limit for resolution process has been specified as 270 days and if the resolution plan is not approved by the CoC with requisite number of votes of the financial creditors (not less than of 75%), then there is no other option but to order liquidation. That is the inevitable consequence of failure to approve the resolution plan within the specified time. The adjudicating authority (NCLT) would have no other option. Further, on presentation of the rejected resolution plan, it is not open to the adjudicating authority (NCLT) to enquire into the justness of the reason or the commercial decision taken by the financial creditors t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... same as a court of appeal. The decision of the dissenting financial creditors reckons various aspects including the confidence about the capacity of the resolution applicant to translate the projected plan into reality as per the timelines specified and the feasibility and viability of the proposal and revival of the company in question. He took us through the relevant provisions including amended provisions and contended that the purpose and intent underlying the amendment was to give prospective effect thereto. He submitted that the appeal filed by the former Chairman and Managing Director of the corporate debtor (IIL) was not maintainable also because the said appellant has no locus. He submitted that the appellant was acting in concert with the resolution applicant and for which the appellant must be called upon to first deposit 100% of the dues. Our attention is invited to the recent decision in Arcelormittal India Private Limited Vs. Satish Kumar Gupta and Others18. He submits that the Court has noticed the necessity of observing timelines by all concerned - be it at the stage of resolution process or liquidation process - in terms of the mandate in the I&B Code. The amendme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appellant was disqualified to appeal and that his appeal before NCLAT was limited to the observation regarding the personal guarantee as noted by the NCLT. The fact remains that the resolution plan put to vote did not garner support of the requisite percentage of financial creditors to the extent of not less than 75% of the voting share. The provisions as couched in the I&B Code do not permit computation of the voting share percentage by excluding the votes of financial creditors who had abstained. Whereas, there is express provision to the contrary, making it amply clear that the votes of the financial creditors who had abstained from voting must be computed along with the votes rejecting the resolution plan, as being dissenting financial creditors. Any other interpretation would result in re-writing Section 30(4) and the regulations framed under the I&B Code, if not doing violence to the legislative intent. She has placed reliance on the decisions of S.L. Srinivasa Jute Twine Mills (P) Ltd. Vs. Union of India and Another (2006) 2 SCC 740. Paragraphs 13-19 and Rajeev Chaudhary Vs. State (NCT) of Delhi (2001) 5 SCC 34 Paragraphs. 3 and 4. As regards the argument of retrospective ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion plan by the CoC. The CoC is called upon to consider the resolution plan under Section 30(4) of the I&B Code after it is verified and vetted by the resolution professional as being compliant with all the statutory requirements specified in Section 30(2). 20. The CoC is constituted as per Section 21 of the I&B Code, which consists of financial creditors. The term 'financial creditor' has been defined in Section 5(7) of the I&B Code to mean any person to whom a financial debt is owed and includes a person to whom such debt has been legally assigned or transferred to. Be it noted that the process of insolvency resolution and liquidation concerning corporate debtors has been codified in Part II of the I&B Code, comprising of seven Chapters. Chapter I predicates that Part II shall apply in matters relating to the insolvency and liquidation of corporate debtor where the minimum amount of default is Rs. 1,00,000/-. Section 5 in Chapter I is a dictionary clause specific to Part II of the Code. Chapter II deals with the gamut of procedure to be followed for the corporate insolvency resolution process. For dealing with the issue on hand, the provisions contained in Chapter II will be si ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion plan received by him to confirm that each resolution plan- (a) provides for the payment of insolvency resolution process costs in a manner specified by the Board in priority to the repayment of other debts of the corporate debtor; (b) provides for the repayment of the debts of operational creditors in such manner as may be specified by the Board which shall not be less than the amount to be paid to the operational creditors in the event of a liquidation of the corporate debtor under section 53; (c) provides for the management of the affairs of the Corporate debtor after approval of the resolution plan; (d) the implementation and supervision of the resolution plan; (e) does not contravene any of the provisions of the law for the time being in force; (f) conforms to such other requirements as may be specified by the Board. xxx xxx xxx" 22. In Innoventive Industries Limited (supra), the Court, after analysing the historical background in which the Code was enacted, opined that one of the most important objectives of the Code was to bring the insolvency law in India under a single, unified umbrella with the object of speeding up the insolvency process. As reg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of admission of the application is given by Section 12(1). This is extendable by a maximum period of 90 days only if the Committee of Creditors, by a vote of 66%, votes to extend the said period, and only if the Adjudicating Authority is satisfied that such process cannot be completed within 180 days. The authority may then, by order, extend the duration of such process by a maximum period of 90 days (see Sections 12(2) and 12(3)). What is also of importance is the proviso to Section 12(3) which states that any extension of the period Under Section 12 cannot be granted more than once. This has to be read with the third proviso to Section 30(4), which states that the maximum period of 30 days mentioned in the second proviso is allowable as the only exception to the extension of the aforesaid period not being granted more than once. 74. What is important to note is that a consequence is provided, in the event that the said period ends either without receipt of a resolution plan or after rejection of a resolution plan under Section 31. This consequence is provided by Section 33, which makes it clear that when either of these two contingencies occurs, the corporate debtor is requir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contravened by the concerned corporate debtor. Any person other than the corporate debtor whose interests are prejudicially affected by such contravention may apply to the Adjudicating Authority, who may then pass a liquidation order on such application." (emphasis supplied) 24. Notably, the resolution plan concerning both the corporate debtors, namely KS&PIPL and IIL was considered by the concerned CoC in October 2017, and was approved by less than 75% of voting share of the financial creditors. The inevitable consequences thereof are to treat the proposed resolution plan as disapproved or deemed to be rejected by the dissenting financial creditors. The expression 'dissenting financial creditors, is defined in Regulation 2(1)(f) of The Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016, to mean the financial creditors who voted against the resolution plan approved by the Committee. This definition came to be amended subsequently w.e.f. 01.01.2018 to mean the financial creditors who voted against the resolution plan or abstained from voting for the resolution plan, approved by the Committee. 25. Admittedly, in the cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t Act, 2018 (Act No.8 of 2018, dated 18th January, 2018) w.e.f. 23rd November, 2017 was to substitute the amended provision, which means that the amended provision stood incorporated as Section 30(4) from the commencement of I&B Code. This argument will be dealt with a little later while considering the effect of the amended provisions. For the present, we are adverting to the provisions in the I&B Code and the regulations framed there under, as were in force in October 2017, when the CoC of the concerned corporate debtor was called upon to consider the proposed resolution plan. 28. We may now take note of the provisions in the 2016 regulations framed under the I&B Code. Chapter-VI of the regulations deals with general meetings of the committee. Chapter-VII with matters relating to voting by the committee. Chapter-VIII with the conduct of corporate insolvency resolution process and Chapter-X with the resolution plan. As the issue under consideration is about the conduct of meeting of CoC for considering the proposed insolvency resolution plan, we may usefully refer to the dispensation delineated in Chapter-VI and VII, in particular. Regulation 18 is about the meetings of the commi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ofessional shall forthwith send a copy of the order of the Adjudicating Authority approving or rejecting a resolution plan to the participants and the resolution applicant. (6) A provision in a resolution plan which would otherwise require the consent of the members or partners of the corporate debtor, as the case may be, under the terms of the constitutional documents of the corporate debtor, shareholders' agreement, joint venture agreement or other document of a similar nature, shall take effect notwithstanding that such consent has not been obtained. (7) No proceedings shall be initiated against the interim resolution professional or the resolution professional, as the case may be, for any actions of the corporate debtor, prior to the insolvency commencement date. (8) A person in charge of the management or control of the business and operations of the corporate debtor after a resolution plan is approved by the Adjudicating Authority, may make an application to the Adjudicating Authority for an order seeking the assistance of the local district administration in implementing the terms of a resolution plan." On a conjoint reading of these provisions it is amply clear th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of not less than 75% of voting share of the financial creditors. It is not possible to countenance any other construction or interpretation, which may run contrary to what has been noted herein before. 30. Thus understood, no fault can be found with the NCLAT for having recorded the fact that the proposed resolution plan in respect of both the corporate debtors was approved by vote of "less than 75%" of voting share of the financial creditors or deemed to have been rejected. In that event, the inevitable corollary is to initiate liquidation process relating to the concerned corporate debtor, as per Section 33 of the I&B Code. 31. Indeed, in terms of Section 31 of the I&B Code, the adjudicating authority (NCLT) is expected to deal with two situations. The first is when it does not receive a resolution plan under sub-section (6) of Section 30 or when the resolution plan has been rejected by the resolution professional for non-compliance of Section 30(2) of the I&B Code or also when the resolution plan fails to garner approval of not less than seventy five percent of voting share of the financial creditors, as the case may be; and there is no alternate plan mooted before the expiry ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (iii) of clause (b) of sub-section (1). (4) On receipt of an application under sub-section (3), if the Adjudicating Authority determines that the corporate debtor has contravened the provisions of the resolution plan, it shall pass a liquidation order as referred to in sub-clauses (i), (ii) and (iii) of clause (b) of sub-section (1). (5) Subject to section 52, when a liquidation order has been passed, no suit or other legal proceeding shall be instituted by or against the corporate debtor: Provided that a suit or other legal proceeding may be instituted by the liquidator, on behalf of the corporate debtor, with the prior approval of the Adjudicating Authority. (6) The provisions of sub-section (5) shall not apply to legal proceedings in relation to such transactions as may be notified by the Central Government in consultation with any financial sector regulator. (7) The order for liquidation under this section shall be deemed to be a notice of discharge to the officers, employees and workmen of the corporate debtor, except when the business of the corporate debtor is continued during the liquidation process by the liquidator." 33. As aforesaid, upon receipt of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... possibilities can be envisioned. One possibility is to take the firm into liquidation. Another possibility is to negotiate a debt restructuring, where the creditors accept a reduction of debt on an NPV basis, and hope that the negotiated value exceeds the liquidation value. Another possibility is to sell the firm as a going concern and use the proceeds to pay creditors. Many hybrid structures of these broad categories can be envisioned. The Committee believes that there is only one correct forum for evaluating such possibilities, and making a decision: a creditors committee, where all financial creditors have votes in proportion to the magnitude of debt that they hold. In the past, laws in India have brought arms of the Government (legislature, executive or judiciary) into this question. This has been strictly avoided by the Committee. The appropriate disposition of a defaulting firm is a business decision, and only the creditors should make it." (emphasis supplied) The report also highlights that having timelines is the essence of the resolution process. It then refers to the principles driving the design of the new insolvency bankruptcy resolution frame work. While dealing w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the vote on the final solution in resolving insolvency. VI. The Code must ensure that, when the negotiations fail to establish viability, the outcome of bankruptcy must be binding. (11) The law must order the liquidation of an enterprise which has been found unviable. This outcome of the negotiations should be protected against all appeals other than for very exceptional cases. ..." (emphasis supplied) 35. Whereas, the discretion of the adjudicating authority (NCLT) is circumscribed by Section 31 limited to scrutiny of the resolution plan "as approved" by the requisite percent of voting share of financial creditors. Even in that enquiry, the grounds on which the adjudicating authority can reject the resolution plan is in reference to matters specified in Section 30(2), when the resolution plan does not conform to the stated requirements. Reverting to Section 30(2), the enquiry to be done is in respect of whether the resolution plan provides : (i) the payment of insolvency resolution process costs in a specified manner in priority to the repayment of other debts of the corporate debtor, (ii) the repayment of the debts of operational creditors in prescribed manner, (iii) t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... exercise of the powers by the resolution professional during the corporate insolvency resolution period; (iii) the debts owed to operational creditors of the corporate debtor have not been provided for in the resolution plan in the manner specified by the Board; (iv) the insolvency resolution process costs have not been provided for repayment in priority to all other debts; or (v) the resolution plan does not comply with any other criteria specified by the Board. xxx xxx xxx." 37. On a bare reading of the provisions of the I&B Code, it would appear that the remedy of appeal under Section 61(1) is against an "order passed by the adjudicating authority (NCLT)" - which we will assume may also pertain to recording of the fact that the proposed resolution plan has been rejected or not approved by a vote of not less than 75% of voting share of the financial creditors. Indubitably, the remedy of appeal including the width of jurisdiction of the appellate authority and the grounds of appeal, is a creature of statute. The provisions investing jurisdiction and authority in the NCLT or NCLAT as noticed earlier, has not made the commercial decision exercised by the CoC of not ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an would be of no avail, unless the approval is by a vote of not less than 75% (after amendment of 2018 w.e.f. 06.06.2018, 66%) of voting share of the financial creditors. To put it differently, the action of liquidation process postulated in Chapter-III of the I&B Code, is avoidable, only if approval of the resolution plan is by a vote of not less than 75% (as in October, 2017) of voting share of the financial creditors. Conversely, the legislative intent is to uphold the opinion or hypothesis of the minority dissenting financial creditors. That must prevail, if it is not less than the specified percent (25% in October, 2017; and now after the amendment w.e.f. 06.06.2018, 44%). The inevitable outcome of voting by not less than requisite percent of voting share of financial creditors to disapprove the proposed resolution plan, de jure, entails in its deemed rejection. 40. Notably, the threshold of voting share of the dissenting financial creditors for rejecting the resolution plan is way below the simple majority mark, namely not less than 25% (and even after amendment w.e.f. 06.06.2018, 44%). Thus, the scrutiny of the resolution plan is required to pass through the litmus test of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been envisaged by the legislature to empower the resolution professional, the adjudicating authority (NCLT) or for that matter the appellate authority (NCLAT), to reverse the "commercial decision" of the CoC muchless of the dissenting financial creditors for not supporting the proposed resolution plan. Whereas, from the legislative history there is contra indication that the commercial or business decisions of the financial creditors are not open to any judicial review by the adjudicating authority or the appellate authority. 43. It was argued that the dissenting financial creditors have not assigned any reason for recording their dissent and therefore, their action is vitiated. As per the provisions applicable at the relevant time in October 2017, there was no requirement of recording reasons for the dissent. That requirement has been introduced by an amendment to the regulations effected in 2018 w.e.f. 4 th July, 2018. Whether that amendment is prospective or has retrospective effect is a matter which will be considered a little later. 44. Suffice it to observe that in the I&B Code and the regulations framed thereunder as applicable in October 2017, there was no need for the di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oting share of the financial creditors before the expiry of the statutory period of 270 days, the inevitable sequel is to pass an order directing initiation of liquidation process against the concerned corporate debtor in the manner specified in Chapter III of the I&B Code. 46. Realising this position, the resolution applicant and the stakeholders supporting the proposed resolution plan of the concerned corporate debtors, would contend that the NCLAT has failed to give effect to the amended provisions which came into effect from 23rd day of November, 2017 and the second amendment from 6th June, 2018 to Section 30(4) of the I&B Code in particular. According to them, the said amendment ought to be given retrospective effect and in any case, being retroactive in nature, ought to govern the proceedings before the NCLAT where the appeal was pending for consideration. For considering this submission, we may advert to the Insolvency and Bankruptcy Code (Amendment) Act, 2017 (No.8 of 2018) which is deemed to have come into force on the 23rd day of November, 2017. Section 6 of this Act purports to substitute Section 30(4) of the principal Act. The amended sub-section (4) reads thus: "6. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... easibility and viability and such other requirements as may be specified by the Board. Additionally, the financial creditors are also required to bear in mind that the legislative intent is to bring about resolution and revival of the corporate debtors so as to benefit not only the corporate debtor but also other stake- holders in equal measure. 48. Suffice it to observe that the amended provision merely restates as to what the financial creditors are expected to bear in mind whilst expressing their choice during consideration of the proposal for approval of a resolution plan. No more and no less. Indubitably, the legislature has consciously not provided for a ground to challenge the justness of the "commercial decision" expressed by the financial creditors - be it to approve or reject the resolution plan. The opinion so expressed by voting is non-justiciable. Further, in the present cases, there is nothing to indicate as to which other requirements specified by the Board at the relevant time have not been fulfilled by the dissenting financial creditors. As noted earlier, the Board established under Section 188 of the I&B Code can perform powers and functions specified in Section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... endment Act of 2018 that the legislature intended to undo and/or govern the decisions already taken by the CoC of the concerned corporate debtors prior to 6-06-2018. 52. Our attention was invited to the report of the Insolvency Law Committee of March, 2018. Even the said report does not mention about introducing the amendment to Section 30(4), regarding the threshold requirement with retrospective or retroactive effect. Indeed, the report has noted about the necessity to alter the low threshold level of 25% of voting share for rejection of the resolution plan which, it felt, should be increased to 44%. It may be useful to reproduce paragraph 11 of the said report dealing with voting share threshold for decisions of the CoC, which reads thus: "11.VOTING SHARE THRESHOLD FOR DECISIONS OF THE COC 11.1 Section 21(8) of the Code provides that all decisions of the CoC shall be taken by a vote of not less than 75 percent of the voting share of the financial creditors. Regulation 25(5) read with regulation 26 of the CIRP Regulations provides that if all members of the CoC are not present, an option to vote through electronic means must be provided. 11.2 It was represented to the Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cturing of the account.80 (d) Section 13(9) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 provided that in the case of financing of a financial asset by more than one secured creditors or joint financing of a financial asset by secured creditors, no secured creditor would be entitled to exercise any or all of the rights conferred on her under the relevant law (such as taking possession of the secured asset or takeover the management of the borrower) unless exercise of such right was agreed upon by secured creditors representing not less than 60 percent (reduced from 75 percent) 81 in value of the amount outstanding as on a record date and such action was binding on all the secured creditors. 11.5 The Committee also noted that globally, bankruptcy laws prescribe different voting thresholds for decisions of the CoC. In USA, approval of a plan requires 66 percent or more voting share in value and 50 percent or more voting share in number for each class of creditors.82 The position is similar in Canada, however, such requirement applies to each class of unsecured creditors.83 In the UK, approval of a plan under adminis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es Private Ltd. (supra), and State Bank of India (supra). In the case of Gottumukkala (supra), this Court, after adverting to the dictum in Government of India Vs. India Tobacco Association (supra), and Zile Singh vs. State of Haryana (supra), opined in paragraph 15 as under: "15. Ordinarily wherever the word 'substitute' or 'substitution' is used by the legislature, it has the effect of deleting the old provision and make the new provision operative. The process of substitution consists of two steps: first, the old rule is made to cease to exist and, next, the new rule is brought into existence in its place. The rule is that when a subsequent Act amends an earlier one in such a way as to incorporate itself, or a part of itself, into the earlier, then the earlier Act must thereafter be read and construed as if the altered words had been written into the earlier Act with pen and ink and the old words scored out so that thereafter there is no need to refer to the amending Act at all. No doubt, in certain situations, the Court having regard to the purport and object sought to be achieved by the Legislature may construe the word "substitution" as an "amendment" having a prospective e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rued rights or which impose obligations or impose new duties or attach a new disability have to be treated as prospective unless the legislative intent is clearly to give the enactment a retrospective effect; unless the legislation is for purpose of supplying an obvious omission in a former legislation or to explain a former legislation. We need not note the cornucopia of case law available on the subject because aforesaid legal position clearly emerges from the various decisions and this legal position was conceded by the counsel for the parties. In any case, we shall refer to few judgments containing this dicta, a little later." (emphasis supplied) Once again, in Vijayalakshmi Rice Mills, New Contractors Co. and Ors. Vs. State of Andhra Pradesh (1976) 3 SCC 37, in paragraph 5, the Court observed thus: "5. Mr Nariman appearing on behalf of the appellants has laid great emphasis on the word "substituted" occurring in clause 2 of the Rice (Andhra Pradesh) Price Control (Third Amendment) Order, 1964 and has urged that the claim of the appellants cannot be validly ignored. Elaborating his submission, counsel has contended that as the prices fixed by the Government are meant for th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nk of India (supra), the Court considered the question as to whether Section 14 of the I&B Code, which provides for moratorium for the period mentioned in the Code, insolvency would apply to a personal guarantor of a corporate debtor. Even in this judgment, the Court after adverting to all the relevant materials and the governing provisions in the Code, concluded that the amended Section 14 was only to clarify and set at rest what the Committee thought was an over-board interpretation of Section 14. On that reasoning the Court concluded that the amendment of Section 14 had retrospective effect. 58. In the present case, however, the amendment under consideration pertaining to Section 30(4), is to modify the voting share threshold for decisions of the CoC and cannot be treated as clarificatory in nature. It changes the qualifying standards for reckoning the decision of the CoC concerning the process of approval of a resolution plan. The rights/obligations crystallized between the parties and, in particular, the dissenting financial creditors in October 2017, in terms of the governing provisions can be divested or undone only by a law made in that behalf by the legislature. There is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lution plan by the concerned financial creditor during the voting in the meeting of CoC, would not render the final collective decision of CoC nullity per se. Concededly, if the objection to the resolution plan is on account of infraction of ground(s) specified in Sections 30(2) and 61(3), that must be specifically and expressly raised at the relevant time. For, the approval of the resolution plan by the CoC can be challenged on those grounds. However, if the opposition to the proposed resolution plan is purely a commercial or business decision, the same, being non-justiciable, is not open to challenge before the Adjudicating Authority (NCLT) or for that matter the Appellate Authority (NCLAT). If so, non-recording of any reason for taking such commercial decision will be of no avail. In the present case, admittedly, the dissenting financial creditors have rejected the resolution plan in exercise of business/commercial decision and not because of non- compliance of the grounds specified in Section 30(2) or Section 61(3), as such. Resultantly, the amended regulation pressed into service, will be of no avail. 62. Relying on the dictum in Mardia Chemicals (supra), in particular paragr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat they may not be found defaulting and being made liable for the unsavoury steps contained under sub- section (4) of Section 13. At the same time, more importantly, we must make it clear unequivocally that communication of the reasons for not accepting the objections taken by the secured borrower may not be taken to give occasion to resort to such proceedings which are not permissible under the provisions of the Act. But communication of reasons not to accept the objections of the borrower, would certainly be for the purpose of his knowledge which would be a step forward towards his right to know as to why his objections have not been accepted by the secured creditor who intends to resort to harsh steps of taking over the management/business of viz. secured assets without intervention of the court. Such a person in respect of whom steps under Section 13(4) of the Act are likely to be taken cannot be denied the right to know the reasons of non-acceptance and of his objections. It is true, as per the provisions under the Act, he may not be entitled to challenge the reasons communicated or the likely action of the secured creditor at that point of time unless his right to approach t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the statutory period of 270 days. Accordingly, no fault can be found with the NCLAT for not entertaining such application. 65. The counsel appearing for the resolution applicant and the stakeholders supporting the resolution plan were at pains to persuade us to exercise powers under Article 142 of the Constitution of India. Inasmuch as, in both the cases, the vote of approval exceeded more than 66% of the voting share of the financial creditors and yet the benefit of the amended provision could not be availed, as it came only during the pendency of the appeal before the NCLAT. The submission is that this Court may set aside the order passed by the Tribunal and relegate the parties in both the cases, before the NCLT for considering the proceedings afresh in light of the amended provision reducing the threshold requirement of percent of voting share of financial creditors to 66%. We are afraid, it is not possible for us to exercise powers under Article 142 of the Constitution which will result in issuing directions in the teeth of the provisions as applicable to the cases on hand. We, therefore, decline to accede to this request. Having answered the core issues and to avoid prol ..... X X X X Extracts X X X X X X X X Extracts X X X X
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