NCLT (PB) New Delhi (29.09.2018) in Nikhil Mehta & Sons (HUF) & Ors. Vs. M/s. AMR Infrastructure Ltd. [CA-811(PB)/2018 in CP No. (1B)-02(PB)/2017 ] held that;
The committee in Para 11.6 recommended to reduce the threshold from 75% to 66% for the critical decisions and 51% for the routine decisions, but in both the cases of the total voting share of the financial creditors.
The recommendations of the Insolvency Law Committee has been promulgating by the IBC (Amendment) Ordinance which has been now replaced by IBC (Second Amendment) Act, 2018 w.e.f 06.06.2018. In the light of fact that the Government and Parliament have taken a conscious decision by not introducing the present and voting requirement in the IBC even while amending the IBC, it would not be open to adopt that cannon of interpretation for construction of these provisions.
The Committee was of the view a higher threshold with the present and voting requirement, or a lower threshold sans the present and voting requirement, may be adopted.
Another aspect which emerges is that the principle of voting share threshold on the basis of present and voting has been discarded. The recommendation of the committee has now been promulgated by Insolvency Bankruptcy Board (Amendment) Ordinance which is now known as Insolvency Bankruptcy Code (Second Amendment) Act, 2018 enacted with effect from 6-6-2018. In the light of the fact that the Government and Parliament have taken a conscious decisions by discarding the present and voting requirement in the Code.
Excerpts of the order;
A short question of law raised in this application filed under Section 60(5) of the Insolvency and Bankruptcy Code, 2016 concerns the deadlock created by the low percentage of votes cast by a new category of financial creditor - Real Estate (Commercial) and Real Estate (Residential). The aforesaid class of creditors were recognised by Code, 2016 by Amendment Act of 2018 w.e.f. 06.06.2018.
# 11. Mr. Abhishek Anand learned counsel has also submitted that by virtue of provision made in Section 21(6A) (b) it can be argued that the class of Real Estate (commercial/ residential) can be regarded as a class distinct from organised sector of financial creditor like bank and other financial institutions. In that regard, it has been submitted that the issues may be decided by applying the principle of 'present and voting'.
# 12. We requested Mr. Sakal Bhushan, learned counsel to assist us to find out correct and legally acceptable canon of construction to interpret Section 22(2) of the Code. Learned Amicus has adopted a different line of reasoning than the counsel for Interim Resolution Professional and submitted that the argument advanced by Mr. Anand, would lead to an interpretation which would run contrary to the intention of the legislature as could be gathered from the Code itself and other sources. Accordingly, Mr. Bhushan submitted that an approach which advances the object of the Code would be preferable as has been reiterated by the Hon'ble Supreme Court in Atlas Cycle Industries Ltd. and Ors. v. State of Haryana (1979) 2 SCC 196.
# 13. Keeping in view the aforesaid, Mr. Bhushan submitted various thresholds mentioned in the Code can be found in Sections 12A(90%), 12(2), 22(2), 27(2), 28(3), 30(4), 33(2) all 66 % and 21(8) 51%. Before the amendment of the Code vide the IBC (Amendment) Ordinance which has been now replaced by IBC (Second Amendment) Act, 2018 w.e.f. 06.06.2018, the threshold was 75 % of the total voting share of the financial creditors in all cases.
# 14. Learned Amicus submitted that for reviewing the working of the Code after one year of its promulgation, the Government set up the Insolvency Law Committee on 16.11.2017. The Committee submitted its Report to the Government on 28.03.2018. In Para No. 11.5 of the said Report, the committee considered the thresholds applicable in USA, Canada, UK and Singapore. The Report mentions that in USA and Canada the threshold was of the total voting share whereas in UK and Singapore it was of the voting share of the present and voting. The committee in Para 11.6 recommended to reduce the threshold from 75% to 66% for the critical decisions and 51% for the routine decisions, but in both the cases of the total voting share of the financial creditors.
# 15. The recommendations of the Insolvency Law Committee has been promulgating by the IBC (Amendment) Ordinance which has been now replaced by IBC (Second Amendment) Act, 2018 w.e.f 06.06.2018. In the light of fact that the Government and Parliament have taken a conscious decision by not introducing the present and voting requirement in the IBC even while amending the IBC, it would not be open to adopt that cannon of interpretation for construction of these provisions.
# 16. According of Mr. Bhushan in the case in hand, the very appointment of the Resolution Professional by the CoC is facing a deadlock. First, only 52.78% financial creditors actually voted and out of that also, only 32.56% voted in favour of appointing the IRP as RP. Thus, the resolution has the approval of only 32.56% of the total voting share of the financial creditors against the requirement of 66% under Section 22(2) of the IBC. Even if we take the percentage of the present and voting (which course is not open), then also it comes to 61.69% (32.56 X 100 = 52.78 = 61.69), which too is short of 66%. It is worthwhile to highlight here that without the appointment of RP, the very working of the time-bound CIRP is just not possible and it would drag the corporate debtor to imminent liquidation under Section 33(1) of the IBC. And this cannot be the intention of law.
# 32. At this stage the report of the Insolvency Law Committee must be read. We refer to Para 11.5 of Report of Insolvency Law committee which read as under:
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. The position is similar in Canada, however, such requirement applies to each class of unsecured creditors. In the UK, approval of a plan under administration requires a simple majority in value of the creditors present and voting. While such threshold is higher in Singapore as the requirement therein is to obtain 75 percent or more of voting share by value and more than 50 percent voting share in number of creditors present and voting, for approval of the plan. The Committee was of the view a higher threshold with the present and voting requirement, or a lower threshold sans the present and voting requirement, may be adopted.
# 33. It is evident that the committee noted a global scenario where different voting share threshold for decision of the committee of creditors have been prescribed. The threshold has been either of the total voting shares or it is present and voting. The committee proceeded to decide in para 11.6 which is as under:
“11.6 After due deliberation and factoring in the experience of past restructuring laws in India and international best practices, the Committee agreed that 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”
# 34. A perusal of the aforesaid paras would make it patent that the Insolvency Law Committee has also opined about the object of the Code which is to promote the resolution. To achieve the aforesaid object the committee recommended the voting share threshold for decision of the committee of creditors in respect of section 22(2) as a sixty six percent of the total votes.
# 35. Another aspect which emerges is that the principle of voting share threshold on the basis of present and voting has been discarded. The recommendation of the committee has now been promulgated by Insolvency Bankruptcy Board (Amendment) Ordinance which is now known as Insolvency Bankruptcy Code (Second Amendment) Act, 2018 enacted with effect from 6-6-2018. In the light of the fact that the Government and Parliament have taken a conscious decisions by discarding the present and voting requirement in the Code, it would not be proper for judicial forum to adopt it by judicial interpretation. Therefore that criteria cannot be adopted for construction of section 22(2) of the Code. Therefore a workable solution by other interpretation process has to be adopted.
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