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TMI Blog2018 (10) TMI 232X X X X Extracts X X X X X X X X Extracts X X X X ..... a (Insolvency Resolution process for corporate person) Regulation 2016 a provision has been made for selecting an insolvency profession which is choice of highest number of financial creditor in the class to act as authorised representative of the creditor of the respective class. If such a distinction is not implied then there is inherent danger of section 12(2), 12 A, 22(2), 27 (2), 28(3), 30(4), 33(2) & 21 (8) becoming unworkable and unconstitutional. It may thus be declared utra vires. In the case of Real Estate (Commercial & Residential) comprising 100% voting share in CoC the aforesaid provision must be read to mean that a resolution would be deemed to be passed if it is voted by highest number of financial creditors in the class of Real Estate (Commercial & Residential). It would make the court workable and would also advance the object of this progressive legislation rather than defeating it. We approve (Agenda No.5) the name of interim resolution professional by appointing him as resolution professional because he had secured largest percentage of voting share threshold. Accordingly Mr Vikram Bajaj, Flat No. 12, Vasudaha Apartment, Plot No. 41, Sector 9 Rohini Delhi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2016 the applicant- Interim Resolution Professional filed an application being CA-725(PB)/2018 with a prayer to appoint two authorised representatives. The application was allowed vide order dated 14.08.2018 and Mr. Alok Kaushik and Ms. Maya Gupta were appointed to represent class of creditor belonging to Real Estate (Commercial) (Residential) respectively. A copy of the order has been placed on record (Annexure A-4). 5. The first meeting of the Committee of Creditors of AMR Infrastructure Limited was scheduled to be convened on 25.08.2018. Accordingly, a notice of the said meeting along with agenda papers and background notes was sent to the Authorised Representatives and suspended Board of Directors through email on 17.08.2018 as per the requirements of Code, 2016 (Annexure A-5, colly). 6. The applicant-Interim Resolution Professional has furnished a list of 906 financial creditors along with their admitted claims, email-IDs and vote shares to the Authorised Representatives and in terms of Regulation 16A (6) of the CIRP Regulations (3rd amendment) access was provided to the Authorised Representatives to electronic means of communication for communicating with the financi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... VOTING Class of Creditors Total Voted Approving Resolution Disapproving Resolution Real Estate Residential 16.36% 8.63% 7.73% Real Estate Commercial 36.42% 20.84% 15.58% Total 52.78% 29.47% 23.31% 55.84% of the votes casted have been casted in favour of the resolution and 44.16% of the votes casted have been casted against the resolution. 5. Appointment of IRP as Resolution Professional (RP) by the COC (subject to written consent of IRP) under Section 22(3)(a) of Insolvency and Bankruptcy Code, 2016 VOTING ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Total 52.78% 33.02% 19.76% 62.56% of the votes castec of the resolution and 37.4 been casted against the rehave been casted in favour 4% of the votes casted have solution. 8. Change of Management of MRG Promoters P Ltd. by removal of present directors and appointment of new directors. VOTING 9. Class of Creditors Total Voted Approving Resolution Disapproving Resolution Real Estate Residential 16.36% 16.02% 0.34% Real Estate Commercial 36.42% 36.12% 0.30% Total 52.78% 52.14% 0.64% 98.79% of the votes casted have been caste ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Code nor the Regulations framed there under provide any specific guidance for resolution of the deadlock. According to IRP Section 60(5) (c) of the Code, 2016 empowers this Tribunal to decide any question of law and fact arising out of or in relation to the Corporate Insolvency Resolution Process of the corporate debtor. Accordingly, the applicant-IRP seeks appropriate directions on the aforesaid agenda item from 4-9 as listed in the tables reproduced in the preceding paras. 8. In the aforesaid backdrop, the applicant-IRP has approached this Tribunal by citing the provisions which requires 66 % of the vote sharing to pass resolution by the CoC and the voting pattern as reflected in the tables would show that it was far below 66 % of voting share. According to the averments made the result of voting by the financial creditor in this class was 52.78% vote sharing only. It is in the aforesaid facts and circumstances that the present application has been filed with the following prayers. (a) Allow the present application; and (b) Issue necessary directions on Agenda Item 4 to 9 placed before the Committee of Creditors in the first meeting dated 25.08.2018 as detailed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lations 2016 (1) is applied most of the items would meet the approval of CoC. Learned counsel has then argued that on the basis of Regulation 25(3) in respect of action to be taken by the Resolution Professional under Section 28(1), it is obligatory on the Resolution Professional to take a vote of the member of the committee present in the meeting on any item listed for voting after discussion on the same. Learned counsel has also highlighted by referring to the provisions of Section 25(5) the idea of providing electronic means to seek vote of the member, who did not vote at the meeting, on the matters listed for voting by electronic voting system in accordance with Regulations, 2016. The voting is required to be kept open for 24 hours. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 17. It is thus submitted that we must find out the real intention of the legislature in order to give a purposive interpretation to the various provisions of the IBC. Learned Amicus took us through the long title of the Code which states An Act to consolidate and amend the laws relating to reorganisation and insolvency resolution.. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have been provided. Many of them have 66% [e.g.Sections 12(2), 22(2), 27(2), 28(3) 30(4) and 33(2)] 90% threshold isprovided by section 12 and 51% is provided by section 21(8) of theCode. For the sake of illustration it would therefore be profitable tofirst read section 22(2) of the Code which is set out below in extenso: 22. (1) The first meeting of the committee of creditors shall be held within seven days of the constitution of the committee of creditors. (2) The committee of creditors, may, in the first meeting, by a majority vote of not less than sixty-six per cent of the voting share of the financial creditors, either resolve to appoint the interim resolution professional as a resolution professional or to replace the interim resolution professional by another resolution professional. (3) Where the committee of creditors resolves under sub-section (2)- (a) to continue the interim resolution professional as resolution professional subject to a written consent from the interim resolution professional in the specified form, it shall communicate its decision to the interim resolution professional, the corporate debtor and the Adjudicating Authority; or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has been threatened as the appointment of the resolution professional by the committee of creditors has met a roadblock along with many other items listed in the tables set out in preceding para. Facts are such that the voting share polled does not answer the threshold limit of sixty six percent which is required for approval of a resolution to appoint an interim resolution professional as a resolution professional in our example. The facts reveal that out of total number of Voting shares of the financial creditors only 52.78 percent concerning appointment of IRP as RP have actually voted and out of 52.78 percent only 32.56 percent voted in favour of appointing an interim resolution professional as resolution professional (see table item 5 supra). In other words the resolution has been approved by only 32.56 percent of the total voting shares of the financial creditor (which is majority votes) against the requirement of not less than sixty six percent of the voting share of the financial creditor as provided under section 22(2) of the Code. 23. There is another aspect of the matter. The issue concerning the class of creditors namely Real Estate (Commercial Residential) have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such class of persons eligible to file an application for initiation of CIR process against a corporate debtor. The threshold for the purposes of seeking extension of a period of CIR process, appointing IRP as RP etc is 66% for all the financial creditors irrespective of class to which they belong. 25. It is also worthwhile to highlight that in case of Real Estate (Commercial Residential) distinct provisions have been made in section21(6A) (a) and (b) which provide for appointment of a authorised representative. The authorised representative is to represent the interests of class of creditor- Real Estate (Commercial Residential). The very object of making these amendments appeared to be that prospective buyers of Real Estate (Commercial Residential) is comprised of thousands of scattered number of financial creditors and their interest are sought to be protected by the authorised representative. 26. There are other provisions which has been inserted by way of amendment in the code which would indicate that Real Estate (Commercial Residential) are a class of creditor distinct from the well organised financial creditor like Banks, Financial Institutions, Asset Reconstru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f mammals. But different parts of that class may be (and, in this case are) involved, so the middle terms does not connect the syllogism a major and minor terms. For it is connected them all of the class designated by it must be referred to in at least one premiss, which is to say that in a valid syllogism the middle term must be distributed in at least on premiss 28. In the present case merging of categories of all financial creditors and treating them as one would also amount to treating unequals as is equal which may result in violation of Article 14 of the Constitution. Therefore providing the same threshold for both categories may result to a declaration that those provisions are ultra vires of Article 14 of the Constitution. 29. However Hon ble Supreme Court in various judgments has laid down that court should adopt an interpretation which sustains the provisions rather than leaning to a declaration that the provisions violate Article 14 of the Constitution. In that regard reliance may be placed on para 118 of the judgement of five judge bench in the case of Delhi Transport Corporation v. D.T.C Mazdoor Congress and Ors. 1991 Supp (l)SCC 600 . Placing reliance on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , and accord to, the statute the meaning and purpose which the legislature intended for it. In Manchester Ship Canal Co. v. Manchester Racecourse Co. Farewell J. said (pp. 360-61) Unless the words were so absolutely senseless that I could do nothing at all with them, I should be bound to find some meaning and not to declare them void for uncertainty. 119. In Fawcett Properties Ltd. v. Buckingham County Council, Lord Denning approving the dictum of Farwell, J. said (All ER p. 516) But when a Statute has some meaning, even though it is obscure, or several meanings, even though it is little to choose between them, the Courts have to say what meaning the Statute to bear rather than reject it as a nullity. 31. Thus the court have been reminded its duty to make what it can of a statute as a statue are meant to be operative and nothing short of impossibility should allow the court to declare a statute unworkable. It has been emphasised that a statue is designed to be workable andinterpretation thereof by a court should be to secure that object unlesscrucial omission or clear direction makes that end unattainable. Weare therefore not open to the view that the pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the non-compliance with the provisions, the fact that the non-compliance with the provisions is or is not visited by some penalty, the serious or trivial consequences that flow therefrom, and, above all, whether the object of the legislation will be defeated or furthered. 37. The aforesaid paragraph has been approved by the HonTDle Supreme Court in the cases of the State of Uttar Pradesh 85 Ors. v. Babu Ram Upadhya (1961 CriLJ 77) and Atlas cycle Industries Limited and Ors. v. State of Haryana (1979 2 SCC 196 ) . 38. When the principles laid down in the aforesaid paragraphs as approved by Hon ble Supreme Court are applied to the provisions of section 22(2) and other cognate provisions we find that threshold voting share for decision of the committee of creditor by sixty six percent would not be mandatory in the cases of class of creditors where the prospective buyers of Real Estate (Commercial Residential) alone constitute the CoC. It. has been seen that in such cases the total polled voting share is very small which in the present case is 52.78 percent. Therefore we would say that in case of deadlock the preference can be given to the decisions taken by the highest ..... X X X X Extracts X X X X X X X X Extracts X X X X
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