2019 (6) TMI 386 - Tri - Insolvency and Bankruptcy

Constitution of Committee of Creditors (COC) - 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 - views of reference Bench of the Tribunal considered. Held that - 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 - 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. 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, 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.

Summary

Issues Involved:
1. Whether the various threshold voting share fixed for the decision of the Committee of Creditors (COC) under various sections of the Insolvency and Bankruptcy Code (IBC) needs to be followed literally or are only directory.
2. The procedure to be followed in determining the voting percentage among the COC to pass a particular resolution.

Issue-Wise Detailed Analysis:

1. Threshold Voting Share: Literal or Directory
The Tribunal examined whether the threshold voting shares specified under the IBC are mandatory or directory. The Tribunal concluded that the voting shares prescribed under the IBC are mandatory. This conclusion is based on the judgment of the Hon'ble Supreme Court in K. Sashidhar vs. Indian Overseas Bank & Ors, which emphasized that the requisite threshold of voting share is essential and cannot be treated as merely directory. The Tribunal noted that treating certain threshold limits as mandatory and others as directory would do violence to legislative intent.

2. Procedure for Determining Voting Percentage
The Tribunal analyzed the procedure for determining the voting percentage among the COC. It was argued by the Home Buyers that their class should be treated distinctly, and the majority vote within the class should represent the entire class's voting share. However, the Tribunal rejected this argument, stating that the IBC does not envisage class-wise segmentation of financial creditors for voting purposes. The Tribunal emphasized that each financial creditor must vote in accordance with their individual voting share and preferences, and the majority vote of a class cannot be extrapolated to represent the entire class.

The Tribunal also addressed the issue of abstaining votes. It was noted that abstaining from voting is a conscious choice and cannot be presumed as support for the majority decision. The Tribunal cited the Supreme Court's decision in Shailesh Manubhai Parmar v. Election Commission of India, which held that the right to vote includes the right to remain neutral.

Submissions by Stakeholders:
- Home Buyers: Argued for a majority rule within their class to be applied to the COC decisions, citing difficulties in voting participation due to various reasons.
- Lenders: Opposed the Home Buyers' argument, emphasizing that decisions should be based on the actual votes cast and not on assumptions regarding abstaining votes.
- IBBI: Suggested that non-participation should be deemed as assent to prevent decision stalling.
- Central Government: Advocated for an outcome-based approach to facilitate resolution over liquidation, suggesting the principle of 'present and voting' for deciding the voting share.

Conclusion:
The Tribunal concluded that:
1. The COC must comprise all financial creditors as one entity without class-wise segmentation for voting purposes.
2. The voting shares prescribed under the IBC are mandatory and not directory.
3. Class-wise voting and extrapolation of majority votes within a class to represent the entire class in the COC are not acceptable.

The Tribunal's conclusions were returned to the Hon'ble President, NCLT, for onward transmission to the Division Bench of NCLT, Allahabad, for pronouncement in open court.