TMI Blog2019 (6) TMI 386X X X X Extracts X X X X X X X X Extracts X X X X ..... jority vote of that particular class in relation to a resolution, particularly by adding the voting share of those financial creditors who had abstained, as the will and vote of the entire class in the COC cannot be accepted. This reference is thus returned to be placed before the Hon'ble President, NCLT with the above conclusions for onward transmission to the Division Bench of NCLT, Allahabad to be pronounced in open court for the benefit of the concerned parties. - CA No. 223/2018 And CA No. 266/2018 in CP No. (IB) 77/ALD/2017 - - - Dated:- 24-5-2019 - MR R. VARADHARAJAN, MEMBER (JUDICIAL) For The Applicant : Mr Rahul Agarwal, Mr Bishwajit Dubey, Mr. Uday Khare, Mr Sharajit Banerji, Mr Aditya Marwah, Advocates For The Respondent : Mr Sumit Batra, Mr Sanjay Bhatt, Ms. Srishti Kapoor For The IBBI : Mr Mithun Shashank And Vasanth Bharni Advocates For The MCA : Mr Balooni, Company Prosecutor ORDER 1) This reference Bench of the Tribunal vide order dated 15.04.2019 has delineated in detail, the question referred to it arising out of the difference of opinion expressed by the Hon'ble Membe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut looking into the threshold limit provided under various provisions of the Code, except for the purpose of withdrawal Of the petition, the approval Of the resolution plan, and liquidation i.e under Section and 33(2) respectively, so that CIRP would continue for the time being in the meanwhile the Central Government may bring amendment to the relevant provisions Of the 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 CIR? 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 percent voting share abstain from voting. Decision of Hon'ble Member (Technical) iii) In the case on handi even if all Banks and 17% Of Home Buyers vote in favour of the Resolution Plan, it will still not sail through as it would not receive mandatory voting percentage of 660/0 *Therefore, required important/crucial decisions will still fail IJ/s 12A, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the said financial creditor by the corporate debtor i.e) the total financial debt owed by the corporate debtor. For eg) if the total financial debt owed by the Corporate Debtor is say ₹ 10000/- and in relation to a particular financial creditor it owes, say ₹ 2000/- the voting share of that particular financial creditor as required to be computed which is evident from the above definition and for easy comprehension condensed hereunder by way of a formulae for a better understanding, will be 2 out of 10 or percentage wise 20%, i.e:- 5) 'Financial Creditor' and Financial Debt' for the purpose of better understanding the terms respectively used in the definition of 'voting share' under Section 5(28) takes its colour from the said terms defined as such under Section 5(7) and Section 5(8) of IBC,2016. Section 5(8) of IBC,2016, it must be noted, has undergone a significant change, as compared to the one at the time when IBC, 2016 was brought into force, by virtue of inclusion of an explanation to clause(f) of sub-section (8) of Section 5, whereby 'Home Buyers' as presently popularly called have been included in relat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... situations contemplated under clauses (a) to (c) Of the said sub-Section (6A) to Section 21 and the manner of representation, participation and voting under such circumstances by an authorized representative on behalf of a financial creditor or a class of creditors exceeding the number as may be specified by the Board, meaning IBBI as defined under Section 3(1) of IBC,2016. 7) IBBI, by virtue of Regulation 2(aa) of IBBI (Insolvency Resolution Process for Corporate Persons) Regulation, 2016, for brevity called has sought to define class of hereinafter as CIRP Regulations, Creditors under which it is seen that in order to form a class, it must have at least ten financial creditors falling under the class. Under sub- Section (7) of Section 21 the Board has been given the power to specify the manner of voting and determining of the voting share in respect of financial debts covered under sub-Section (6) And (6A), And under sub-Section(8) of Section 21, it is provided that all the decisions of COC shall be taken by a vote of not less than fifty one per cent of voting Share Of the financial creditors, except as otherwise provided in the Code. 8) The manner in w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9) The manner of selecting the authorized representative, necessitated in view of Section 21(6) and 21(6A) read with Section 25A of IBC,2016, even though not provided for in IBC,2016, however, has been provided in the CIRP Regulations by the regulator namely IBBI, more particularly under Regulation 4A and Regulation 16A of the said Regulations brought into effect from 03.07.2018 and since particular emphasis was sought to be placed on the part of the home buyers in relation to the said Regulations, particularly in relation to ascertaining the class of creditors by the IRP and his choice by the highest numbers belonging to a particular class, the said regulations 4A and 16A are reproduced hereunder for ready reference: of authorised representative Choice of authorised representative 4a (1) On an examination of books of account and other relevant records of the corporate debtor, the interim resolution professional shall ascertain class(s) of creditors, any. (italics supplied) (2) For representation of creditors in a class ascertained under sub-regulation (1) in the committee, the interim resolution professional shall identify t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or in a class shall be in proportion to the financial debt which includes an interest at the rate of eight per cent per annum unless a different rate has been agreed to between the parties. (italics supplied) (8) The authorised representative of creditors in a class shall be entitled to receive fee for every meeting of the committee attended by him in the following manner, namely: - Number of creditors the class Fee per meeting of the committee (Rs) 10-100 15,000 101-1000 20,000 More then 1000 25,000 (9) The authorised representative shall circulate the agenda to creditors in a class and announce the voting window at least twenty-four hours before the window opens for voting instructions and keep the voting window open for at least twelve hours. 10) A broad scheme of the relevant provisions of IBC, 2016 and the regulations, namely, the CIRP Regulations has been given as above broached by the parties ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar bench, as well as based on their dogmatic approach in digging their heels in the COC as well, thereby completely putting the resolution process of the corporate debtor as well as the CIRP into a jeopardy, which obviously is not in the interest of any of the stakeholder concerned and is neither conducive, taking into consideration the avowed objects for which IBC, 2016 was brought in to effect as reflected the Statements of objects and reasons for enacting IBC, 2016, interalia, for timely resolution of insolvency to support development of credit markets and encourage entrepreneurship nor in the interest of the financial creditors themselves, when an onus has been placed upon them by the provisions of IBC, 2016 and as reinforced by the Hon'ble Supreme Court in several of its decisions including in Innoventive Industries Ltd Vs. ICICI Bank Anr in Civil Appeal Nos.8337-8338 dated 31.08.2017, wherein extracts of Bankruptcy Law Reforms Committee of November, 2015 was reproduced by the Hon'ble Supreme Court, more particularly at paragraph 16 of the said judgement, with particular emphasis that once a default takes place control is supposed to transfer to the creditors and equ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) read With Section 31 of IBC, 2016 and the attendant regulations thereunder as being commercial decisions and cannot to seek to judicially review the decisions of COC and that such an exercise of jurisdiction cannot be assumed to itself which has been in effect abhorred by the Hon'ble Supreme Court in k, Sashidhar vs, Indian Overseas Bank Ors in Civil Appeal No. 10673 of 2018. Still on the decision rendered as recently as 05.02.2019, the Hon'ble Supreme Court in relation to the approval of resolution plan and construing Section 30(4) of IBC, 2016 and the threshold limit to be achieved for an approval of resolution plan has observed as follows at paragraph 26 in the judgement to quote: What is significant is the second part of the said provision, which stipulates the requisite threshold of not less than seventy five percent of voting share of the financial creditors to treat the resolution plan as duly approved by the COC. That stipulation is the quintessence and made mandatory for approval of the resolution plan. Any other interpretation would result in rewriting of the provision and doing violence to the legislative intent. Presently by vir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... : - 12A: The Adjudicating Authority may allow the withdrawal of application admitted under section 7 or section 9 or section 10, on an application made by the applicant with the approval of ninety per cent voting share of the committee of creditors, in such manner as may be specified. 12(2) The resolution professional shall file an application to the Adjudicating Authority to extend the period of the corporate insolvency resolution process beyond one hundred and eighty days, if instructed to do so by a resolution passed at a meeting of the committee of creditors by a vote of (sixty-six) per cent of the voting Shares, 27(2) The committee of creditors may, at a meeting, by a vote of sixty-six per cent of voting shares, resolve to replace the resolution professional appointed under section 22 with another resolution professional, subject to a written consent from the proposed resolution professional in the specified form. 28(3) No action under sub-section (1) shall be approved by the Committee of creditors unless approved by a vote of [sixty-six] per cent of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out with its views taking into consideration, public importance. For sake of brevity, the essence of their submissions under the respective captions alone are extracted as hereunder: - i) HOME BUYERS It is contended on behalf of the Home Buyers that the home buyers are a distinct class of financial creditors and a rule of majority among that class should be used to consider as the view of that class in relation to COC decisions and not based on the principle of present and voting in the COC, be it in any mode. Further, home buyers it is also pointed are manifestly the class of creditors who have similar rights and expectations and being a distinct class can be represented through authorized representative, and that they are a class of financial creditors, distinct from the well-organized financial creditor like Banks, financial institutions and other like non-banking financial companies and unlike these financial creditors the home buyers of whom it is submitted might not have a proper understanding or access to the voting mechanism for (e.g) that some of the home buyers may be old and infirm while others might not be well conversant with computer an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ive interpretation to the existing provisions of IBC, 2016 and the attendant regulations framed thereunder being the CIRP Regulations, as given by the Hon'ble Principal Bench in the matter of Nikhil Mehta sons (HUE) ors v. AMR Infrastructure Ltd in CA in (1B)-02(PB)/2017 dated 29.09.2018 and applying the ratio to the facts and circumstances of the instant case, which it is submitted will go a long way in resolving the impasse created in the CIRP of the corporate debtor. In this connection the exercise of choice of the AR by a class of creditors as prescribed under Regulation 4A read with Regulation 16A as already extracted in paragraphs supra it submitted should be adopted. It is further pointed out that because Of the receding time limit of even the extended period of CIRP by 90 days, over and above the initial period of 180 days having been exhausted, the resolution of corporate debtor is bound to reach a dead end and thereby ultimately lead to its liquidation which -in no way helps the majority of the financial creditors holding 59.1% voting share in the COC, however, as expressed by the learned counsel seems to be the intent of Lenders. ii) LENDER ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d for actualizing the preamble of the code, an outcome-based approach which would facilitate resolution of Jaypee Infratech Ltd. (Corporate Debtor) over liquidation to be adopted. Therefore, it is stated that home buyer may be treated as a sub class within the ambit of financial creditors, It is further stated that the voting threshold as prescribed under the code are mandatory in nature and not directory and for the purpose Of deciding share and manner of voting by home buyers the principle of 'present and voting' may be applied. The resulting majority vote by this manner/mechanism may be considered as the vote for the whole of the sub class of home buyers. 16) Before proceeding further, in relation to the citation as quoted on behalf of home buyers namely Nikhil Mehta sons (HUF) Ors v. AMR Infrastructure Ltd in CA in dated 29.09.2018 to draw support to their contention that a majority vote of home buyers as a class should be treated as the will of the entire class and to have it extrapolated into the decisions of the COC, with respect the said citation can be distinguished on facts as in relation to the composition of COC in the case cited, it was exclusiv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r own investments as envisaged by IBC, 2016, which was not possible under the earlier dispensation relating to insolvency as the control of assets and affairs of an insolvent happened to be still in the control of the management of such companies, the home buyers had shown apathy despite enjoying an overwhelming majority of almost close to 60% voting share in the COC and is not able to come together amongst themselves or with the lenders thereby virtually abandoning their premier position vis- -vis the insolvency process of the corporate debtor all of which had only worsened their state in relation to their investments and has also landed the CIRP of the corporate debtor in a state of virtual limbo and thereby a deadlock or stalemate and consistently the doors of this Tribunal or the courts of justice for their aid. knocking However, this Tribunal is also equally well aware that while trying to resolve lock, unlike the equitable jurisdiction available to it under the the dead Companies Act, 2013 to resolve the deadlock as between shareholders of a company, it should confine itself to the statute, namely IBC, 2016 and the attendant rules and regulations framed there under, as alread ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s required to act within the confines of IBC, 2016 and that the constitution Of COC is required to be in accordance with law, namely Section 21 of IBC,2016 and cannot be beyond the scope of the provisions of Section 21 of IBC,2016 which deals with the constitution of COC as evident from its perusal, and the dynamics of which provision has already been discussed in detail in paragraph 6 supra. At the cost of repetition sub-section (2) of Section 21 of IBC,2016 clearly lays down that the Committee of Creditors shall comprise all financial creditors of the CD, meaning thereby all the financial creditors are sought to be brought under one roof, subject of course they being not incapacitated due to their relationship with the CD and being considered as a 'related party'. Further, the segmentation of the financial creditors in the COC in relation to voting is not envisaged at all as sought to be given a colour by the homebuyers nor class wise approval of the decisions of COC is also envisaged under IBC, 2016 as it has been provided under Section 24(6) of IBC, 2016 that each financial creditor shall vote in accordance with the voting share assigned to him based on the financial de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther routine decisions for continuing the corporate debtor as going concern by the IRP/RP, the voting share threshold may be reduced to 51 percent or more of the voting share of the financial creditors. 20) It is also equally important to note that subsequent to the submission of the report by ILC, the Second Amendment Act of 2018 was also brought into effect substantially reducing the voting threshold limits in relation to voting share of the financial creditors in percentage terms cutting across the different sections and by virtue of Second Amendment Act, 2018 wherein home buyers and their real estate transactions was also brought within the definition and ambit of Section 5(8) of IBC, 2016 as 'financial debt' and as a consequence commensurate amendments have also been made in relation to Section 21 of IBC, 2016, inclusion Of Section 25A Of IBC, 2016 for enabling AR to act on behalf of class of creditors for the purpose of representation in the COC. Consequent amendments to regulations have also been made to the CIRP Regulations by IBBI, some of which have been extracted in the earlier paragraphs of this order. However, it is important to note that in relat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of their claims. Further, they are also given opportunity to indicate the choice of an insolvency professional to act as their authorized representative. The home buyer class financial creditors are also given electronic means of between communication the authorized representative and the creditors in the class under Regulation 16A (6) Of the CIRP Regulations. Further, the authorized representative is under obligation to circulate the agenda of the COC meeting to the creditors in a class and he shall announce the voting window at least 24 hours before it opens for voting instructions and another 12 hours for actual voting. Regulation 25(4) provides for the resolution professional to announce the decision taken on items along with the names of the members of COC who voted for or against the decision or abstained from voting. This again, indicates that the members need to be present and vote in the meetings. Voting is also made open for 24 hours from the circulation of the minutes of voting for the benefit of the members who did not vote at the meeting by electronic system. Hence, it can be seen that the creditors in a class get every opportunity to understand their voting rights ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... L) NO.631 OF 2017 in the matter of Shailesh Manubhai Parmar V. Election Commission of India Through The Chief Election Commissioner Ors in relation to voting, albeit by elected representative for candidates to the Upper House of the Parliament, wherein referring to the decision in Lily Thomas v. Speaker, Lok Sabha has stated that voting is a formal expression Of Will or opinion by the person entitled to exercise the right on the subject or issue in question and that right to vote means the right to exercise the right in favour of or against the motion or resolution and such a right implies right to remain neutral as well. This principle equally applies herein as well, as a financial creditor has been given a choice to remain neutral for whatever reasons best known to him and that his neutral vote or abstaining voting share cannot be taken as a choice of affirming, as now touted by IBBI, or as a voting share in rejecting a particular resolution as was Sought to be previously done by inclusion of the definition Of dissenting financial creditor' contained in Section 2(f) in the CIRP Regulations, which definition stood subsequently omitted on and from 31.12.2017. 22) ..... X X X X Extracts X X X X X X X X Extracts X X X X
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