2019 (1) TMI 1506 - Tri - Insolvency and Bankruptcy

Procedure for determining voting share for passing Resolutions in the CoC that comprise multiple class of Financial Creditor during the CIRP - whether the various threshold voting share fixed for the decision of the COC under various sections of the I & B Code needs to be followed literally or whether they are only directory, and if so, what procedure has to be followed in determining the voting percentage among the COC to pass a particular resolution? - Difference of opinion. Held that - The case shall be referred by the President for hearing by one or more of the other Members of the Tribunal u/s 419(5) of the Companies Act, 2013 read with rule 60 of NCLT Rules.

Summary

Issues Involved:
1. Procedure for determining voting share for passing resolutions in the Committee of Creditors (CoC) comprising multiple classes of Financial Creditors during Corporate Insolvency Resolution Process (CIRP).

Issue-wise Detailed Analysis:

1. Procedure for Determining Voting Share for Passing Resolutions in CoC:

Introduction:
The judgment addresses the procedure for determining the voting share required for passing resolutions in the CoC, specifically when the CoC comprises multiple classes of Financial Creditors, including home buyers. The case arose from a deadlock in the voting process due to the non-participation of a significant number of home buyers.

Background:
- IDBI initiated CIRP against Jaypee Infratech Ltd. (JIL) on 09.08.2017.
- The Supreme Court, in Chitra Sharma v. Union of India, directed the recommencement of CIRP and the inclusion of home buyers as Financial Creditors.
- An Interim Resolution Professional (IRP) was appointed, and home buyers were identified as a class of creditors with an Authorized Representative.

Voting Deadlock:
- In the first CoC meeting, six voting items were placed, with four rejected and two deferred due to not meeting the required voting thresholds.
- In the second CoC meeting, five out of six voting items were rejected for the same reason.
- The IRP reported that the CIRP process was at a standstill due to the failure to meet the minimum voting thresholds, primarily because of the non-participation of home buyers.

Legal Provisions and Interpretation:
- Various sections of the Insolvency and Bankruptcy Code (IBC) prescribe specific voting thresholds for passing resolutions in the CoC.
- The Financial Creditors argued that voting percentages should be calculated based on the votes actually cast, disregarding abstained votes.
- The Home Buyers Associations contended that abstained votes should not be counted as negative votes, citing judgments from the Gujarat and Karnataka High Courts.

Judicial Opinions:
- The Principal Bench of NCLT in Nikhil Mehta & Sons (HUF) v. AMR Infrastructure Ltd. held that voting thresholds should be considered directory in nature for classes of creditors like home buyers, where participation is low.
- The NCLAT, in a separate case, emphasized that the mandatory voting thresholds must be adhered to.

Bench's Differing Opinions:
- The Judicial Member opined that in cases where home buyers constitute 50% or more of the voting share, the highest number of votes in favor should be considered, except for resolutions under sections 12A, 30(4), and 33(2) of the IBC.
- The Technical Member argued that home buyers should be treated as a separate class with en-bloc voting rights, and their voting share should be proportionately increased to reflect the will of the class.

Conclusion:
The case was referred to the President of the NCLT for hearing by one or more other members of the Tribunal under section 419(5) of the Companies Act, read with Rule 60 of the NCLT rules, to resolve the differing opinions on the procedure for determining voting share for passing resolutions in the CoC.

Other Orders:
- The IRP or any aggrieved person was given liberty to file an appropriate application at a later stage seeking exclusion of the period covered by these applications for calculating the time limit for completion of the CIRP process.
- CA No. 223 of 2018 and CA No. 266 of 2018 were disposed of by referring the matter to the President, NCLT, New Delhi.

Summary:
The judgment highlights the complexities in the voting process within the CoC, particularly when home buyers, as a class of Financial Creditors, are involved. The differing opinions among the bench members reflect the challenges in balancing the interests of various stakeholders while adhering to the statutory voting thresholds. The matter was ultimately referred to the President of the NCLT for further resolution.