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TMI Blog2019 (6) TMI 386X X X X Extracts X X X X X X X X Extracts X X X X ..... reference as well as circumstances which in the opinion of this reference Bench necessitating for it, seeking the views of Union of India, through the Ministry of Corporate Affairs and the Insolvency and Bankruptcy Board of India (IBBI), being the Regulator which had framed the Regulations for their inputs in relation to the issue on hand. With a view to obviate repetition, however to make the present order more intelligible and for immediate reference, the earlier order dated 15.04.2019 is annexed to the present order as Annexure 2) In relation to the applications as filed by the Home Buyers Association on the one hand and on the other by IDBI on behalf of the Lenders, to recapitulate only the question of law as framed by the Hon'ble Members of NCLT, Allahabad and the respective decisions rendered by each of them, in relation to the same, for ready reference is reproduced as under: Question of law raised in the order of NCLT, Allahabad Division Bench: i.The question of law that has been raised in both applications, One by Nine Home Buyers Association and other by eight Financial Creditors, all of them being the members of Committee of Creditors(CöC) is whether the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed there at for enabling the smooth progress of a Corporate Insolvency Resolution Process (CIRP) of a Corporate Debtor (CD) are primarily driven by the voting strength exercised by the financial creditors as its members in accordance with the provisions of IBC, 2016 and the regulations framed thereunder. As already brought out in the order dated 15.04.2019, at paragraph 3 of the said order annexed as Annexure 'A" to the present order, differing voting share percentages have been prescribed under Insolvency and Bankruptcy Code, 2016 (IBC) for passing a particular resolution, whether it be for the appointment of a Resolution professional (RP) or for say approval of a resolution plan. 'Voting share" for the purpose of IBC,2016, and thereby for ascertaining whether the respective threshold percentage limits have been attained or not, has been defined under Section 5(28) of IBC,2016 which is to the following effect: 5(28) "voting share" means the share of the voting rights Of a single financial Creditor in the committee of creditors which is based on the proportion of the financial debt owed to such financial creditor in relation to the financial debt owed by the corporate de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tors and the lead petition being of 2019 pending before the Hon'ble Supreme Court in the matter of Pioneer Urban Land and Infrastructure Ltd. & Anr. v. Union of India & Ors. 6) Be that is it may, for the present and as the position as it stands today, a 'Home Buyer' by virtue of explanation to Section 5(8)(f) of IBC,2016 is a 'financial creditor' as defined by virtue of which inclusion it has enabled a Home Buyer to be a part Of the COC of the Corporate Debtor and to vote in the COC of the Corporate Debtor with an individual voting share of his own in the COC, the constitution of which is governed by Section 21 of IBC, 2016. Upon reading of Section 21 it is evident from sub-section (2) of Section 21 that the COC to be constituted by the Interim Resolution Professional (IRP) shall comprise all financial creditors of the Corporate Debtor, subject to the exclusion of ta related party' of a Corporate Debtor from the COC as provided in the 1st proviso to sub-Section (2) of Section 21. Further sub-sections (3), (4) and (5) of section 21 also provides as to how the financial debt and voting share are required to be computed in case of existence of peculiar circum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esentative under sub-section (6) or sub-section (6A) of section 21 or sub-section (5) of section 24 shall have the right to participate and vote in meetings of the committee of creditors on behalf of the financial creditor he represents in accordance with the prior voting instructions Of such creditors obtained through physical or electronic means. (underline supplied) (2) It shall be the duty of the authorised representative to circulate the agenda and minutes of the meeting of the committee of creditors to the financial creditor he represents. (3) The authorised representative shall not act against the interest of the financial creditor he represents and shall always act in accordance with their prior instructions. Provided that if the authorised representative represents several financial creditors, then he shall cast his vote in respect of each financial creditor in accordance with instructions received from each financial creditor, to the extent of his voting share. Provided further that if any financial creditor does not give prior instructions through physical or electronic means, the authorised representative shall abstain from voting on behalf of such credit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed under sub-regulation (1) Of regulation 12, to act as the authorised representative of the creditors of the respective class: (italics supplied) Provided that the choice for an insolvency professional to act as authorized representative in Form CA received under sub-regulation (2) of regulation 12 shall not be considered, (2) The interim resolution professional shall apply to the Adjudicating Authority for appointment of the authorised representatives selected under sub- regulation (1) within two days of the verification of claims received under sub-regulation (1) of regulation 12. (3) Any delay in appointment of the authorised representative for any class of creditors shall not affect the validity of any decision taken by the committee. (4) The interim resolution professional shall provide the list of creditors in each class to the respective authorised representative appointed by the Adjudicating Authority. (5) The interim resolution professional or the resolution professional, as the case may be, shall provide an updated list of creditors in each class to the respective authorised representative as and when the list is updated. Clarification: The authorised r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r the majority voting share percentage of that particular class, namely, home buyers obtained in relation to a particular resolution should be treated as the voting share percentage of the entire class of home buyers, thereby automatically assuming the voting share of individual financial creditors who had chosen to abstain, for whatever reasons best -known to them, as an affirmative vote for the majority decision of that class, namely home buyers, who have chosen to exercise their voting share by giving specific instruction in this regard to their AR. The next question which also arises in light of the differing view expressed by the stakeholders is in relation to computing the voting strength obtained for resolution(s) based on total voting share percentage in value terms or to be considered in relation to voting share of members on the principle of members who are 'present and voting' for the resolution(s). The above difference of view of the home buyers on the one hand and the lenders on the other, has led to each of these financial creditors jockeying their respective stands by trying to interpret the provisions of IBC, 2016 and the CIRP Regulations to suit their conve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her v. Union of India and others in WP(C) No.99 of 2018 and other connected Writ petitions by the Hon'ble Supreme Court, while dealing with the primary focus of IBC, 2016, at paragraph 12 of the said judgement wherein it has been stated that it is to ensure revival and continuation of the corporate debtor rather than a corporate death by liquidation and cannot be used as a mere recovery legislation of the creditors. 12) At this stage it is also required to note that even in relation to a company which is more than adequately solvent, a dead lock situation may arise due to disputes between the promoters/shareholders of a company who are in control of the affairs Of the company due to several factors including competing claims, however to resolve such a dead lock, this Tribunal under the provisions of Companies Act, 2013 has been vested with an equitable jurisdiction and failing in its efforts to resolve the deadlock, to order winding up of the company in exercise of the said jurisdiction, However, as an adjudicating authority under IBC, 2016 which constitutes a separate code by itself, as stated by the Hon 'ble Supreme Court, this Tribunal only has limited powers even in r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n has been made by the legislature in Section 33(2) of IBC, 2016 in relation to the resolution as passed by the COC to muster a voting of "not less than sixty six percent of the voting share" in relation to the liquidation of the corporate debtor under the circumstances Stated therein. Again, under Section 22(2) in the appointment of IRP as an RP, the resolution is required to attain a majority vote of not less than 66 percent of the voting share. Hence in the teeth of judgement of the Hon'ble Supreme Court in K. Sashidar's case, this reference bench is not able accept, the simplistic view, that save the three provisions as given the decision of Hon'ble Member (Judicial) of Allahabad Bench to be treated as mandatory, the other threshold limits prescribed are to be treated only as directory as the said interpretation or construction, as observed by the Hon'ble Supreme Court would be doing violence to legislative intent. 13) However, in Comparison, in relation to Section 12A, 12(2), 27(2) and 28(3) of IBC, 2016 the usage of "not less than" has been Consciously avoided by the Legislature as evident from the extract below of the said relevant portions, namely the sub- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on'ble Supreme Court has held as above while specifically dealing with Section 12A as noted above. In view of the same, it is best left to the legislative policy and intent when it has chosen to fix specific voting share under the different provisions of IBC, 2016 to be garnered for approval of a resolution under a given situation as enunciated under the respective provisions itself and to hold otherwise would be doing violence to legislative intent and in relation to this aspect the reference bench of this tribunal is hence in concord with the view expressed by the Hon'ble Member (Technical) to the effect that merely treating certain threshold limits fixed as mandatory and others as directory will not be a solution to the problem. 15)Again, having considered the judicial precedents as above and keeping same into consideration, let us now look to the submissions made by the respective counsels for the parties as well as upon notice, by the Ministry of Corporate Affairs through an affidavit filed by the Regional Director, Northern Region as well as IBBI, the regulator which have also come out with its views taking into consideration, public importance. For sake of brevity, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at by adopting the principle of class voting in respect of Home Buyers who are anyhow treated as a separate class under the provisions of IBC, 2016 relating to their representation and participation through the authorized representative, in relation to the voting as well, the said principle is required to be applied or extended by considering the majority votes polled and thereby applying the rule of majority of their class, be it by approving or disapproving a particular resolution, to be the will of the entire class of Home Buyers having a 59.1% voting share in the COC. In effect including those who have abstained from voting to be counted as the voting share accruing to the majority who have voted one way or the other and at best only deducting the voting share relatable to the votes cast against the majority voting share. The resultant voting share so arrived at, it is submitted is to be extrapolated as the voting share of the entire class of home buyers in the COC. It is beseeched on the part of the home buyers, that this Can be achieved, if this Tribunal gives a purposive interpretation to the existing provisions of IBC, 2016 and the attendant regulations framed thereunder be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ving of voting items that have received majority voting share Of the COC members who are present and voting Or alternatively, the percentage of only voting members whether confirming or opposing the decisions (after excluding abstained voting) to be counted and to see if that meets the required percentage as specified under the provisions of IBC, 2016. iii) IBBI The board, in short has taken a view, that according to the amended sub regulation 25(3) of the CIRP Regulations, the RP shall take a vote Of the members of the committee present and voting. The board states that the stakeholder who with adequate notice and opportunity to participate, does not do so, should be deemed to have given his or her assent to the other stakeholder to decide on the matter at hand, This presumption is necessary to prevent decisions being stalled as a result of non-participation. iv) CENTRAL GOVERNMENT The Central Government as evident from the affidavit filed has taken, keeping in view the larger public interest and 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. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a fond hope of obtaining a shelter over their head or in the case of lenders who have lent to the CD out of public funds deposited pre-dominantly with them again by the public, it is also equally evident that the CD, in view of a mismatch as between the liabilities it owes as compared to the asset it owns being less, is thereby facing a situation of insolvency which is unable to be resolved because of a stalemate in existence as between the financial creditors, who are required under the provisions of IBC,2016 to pilot the resolution of insolvency of the Corporate Debtor to the mutual benefit of all the stakeholders by taking a balanced approach to insolvency resolution process and to act responsibly in discharging the onus cast upon them, based on mutual trust and confidence and not to adopt an approach of confrontation amongst themselves leading to deadlock and thereby liquidation of the CD. Unfortunately, instead of taking control of the affairs of Corporate Debtor and thereby their 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the expression "financial creditors" * (Italics and highlight supplied) 18) Thus while the Hon'ble Supreme Court was fully conscious that it had interfered in the process of CIRP of the corporate debtor by re-calibrating the date of commencement of CIRP of the corporate debtor on and from the date of the order, i.e 09.08.2018 in exercise of the writ jurisdiction available under Article 32 of the Constitution and had issued directions in the exercise of its inherent power available to it under Article 142 as evident from sub-paragraph (i) Of paragraph 42 extracted as above. It is also pertinent to note that by Virtue of the italicized portion of paragraph (i) & (ii) of paragraph 42, the Hon'ble Supreme Court has directed this Tribunal in relation to extension of time of the CIRP, if necessary, as well as the constitution of the COC both to be in terms of the provisions of IBC,2016. This necessarily connotes that this Tribunal is 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 wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... extracted in K. Sashidhar's case with particular emphasis being laid upon by the Hon'ble Supreme Court to paragraph 11.6 of the said report of Il-C being material which is to the following effect: 11.6. After due deliberation and factoring in the experience of past restructuring laws in India and international best practices, the Committee agreed to further the stated object of the Code i.e. to promote resolution, the voting share for approval of resolution plan and other critical decisions may be reduced from 75 percent to 66 percent or more of the voting share of the financial creditors. In addition to approval of the resolution plan under section 30(4), other critical decisions are extension of the CIRP beyond 180 days under section 12(2), replacement or appointment of RP under sections 22(2) and 27(2), and passing a resolution for liquidation under section 33(2) of the Code. Further, for approval of the other 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Compulsory de-mat of listed companies share is also a case in point. Hence, in this regard this reference tribunal is unable to buy the objections put forth on the part of the home buyers, more so in view of the written note circulated by IBBI before this reference Bench particularly giving a brief overview of the regulations governing the voting process providing for more than an adequate opportunity to every individual financial creditor having a voting share, be it a home buyer or a lender, to participate in the voting process as made at paragraph 25 of the said note, the material portion of which is reproduced hereunder: 25.The Code provides sufficient measures to make available information in advance to all the financial creditors, including the home buyer class creditors, under Regulation 8A of the CIRP Regulations and under Form CA under the Schedule to the said Regulations for submission 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the liquidation mode as a necessary outcome of the collapse of the CIRP process and thereby finding a resolution. In this connection it is pertinent to note that the 2nd proviso to sub-section(3) of Section 25A specifically provides that if any financial creditor does not give prior instructions through physical or electronic means, the authorized representative Shall abstain from voting on behalf Of such creditor. The above section clearly evidences the legislature was quite conscious that a financial creditor should be given a choice to abstain from voting by not exercising his voting share or giving voting instructions which choice is in addition to the choice of voting in affirmative or negative manner to a particular resolution which is in line with the well established principles laid down in relation to voting dealt with by the Hon'ble Supreme Court in WRIT PETITION (CIVIL) 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. Spe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y by themselves with a greater number voting in relation to resolutions so that their writ can run large in the COC of the CIRP of the Corporate Debtor, and no court or tribunal can compel the members to participate in accordance with their voting strength or share nor can it act beyond the scope and ambit of the statute which if done will be only doing violence to legislative intent. To sum up based on the above, this reference Bench of the Tribunal is hence of the considered view that i) the Committee of Creditors (COC), taking into consideration Section 21(2) of IBC, 2016, shall comprise of all financial creditors and must be construed as one and cannot be segmented class wise particularly for the purpose of computation of voting share; ii) The voting share as are prescribed and required to be achieved under the respective provisions of IBC, 2016 are mandatory in nature and cannot be held to be directory; iii) For the computation of voting share required to be achieved as prescribed in IBC, 2016, class wise voting of financial creditors, be it home buyers or lenders or otherwise and to treat the majority vote of that particular class in relation to a resolution, parti ..... X X X X Extracts X X X X X X X X Extracts X X X X
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