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TMI Blog2019 (2) TMI 1043X X X X Extracts X X X X X X X X Extracts X X X X ..... are concerned with the provisions of I B Code dealing with the resolution process. The dispensation provided in the I B Code is entirely different - non-recording of reasons would not per se vitiate the collective decision of the financial creditors. The legislature has not envisaged challenge to the commercial/business decision of the financial creditors taken collectively or for that matter their individual opinion, as the case may be, on this count. As contended that NCLAT committed manifest error in not calling upon the dissenting financial creditors to respond to the applications filed in the concerned appeals pending before it, including with a prayer to allow the resolution applicant to revise the resolution plan. We find no merits in this submission. The reliefs claimed in the stated application filed before the NCLAT would not take the matter any further. For, it is enough for the dissenting financial creditors to disapprove the proposed resolution plan by voting as per its voting share, based on commercial decision. Indeed, if the opposition of the dissenting financial creditors is in regard to matter(s) within the jurisdiction of the Tribunal ascribable to Sections ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 81 of 2018. 2. All appeals were taken up for hearing at the notice stage with the consent of the contesting respondents. 3. These appeals have arisen from the common judgment and order of the National Company Law Appellate Tribunal (for Signature Not Verified short NCLAT ), New Delhi, dated 6th September, 2018 rendered in appeals filed in relation to the insolvency resolution process under the provisions of the Insolvency and Bankruptcy Code, 2016 (for short I B Code ) concerning Kamineni Steel Power India Pvt. Ltd. (for short KS PIPL ), having its registered office at Hyderabad, Telangana and Innoventive Industries Ltd. (for short IIL ) having its registered office at Pune, Maharashtra. 4. The NCLAT affirmed the order passed by the National Company Law Tribunal, Mumbai Bench (for short NCLT Mumbai ) recording rejection of the resolution plan concerning IIL and directing initiation of liquidation process under Chapter III of Part II of the I B Code. As regards KS PIPL, the NCLAT reversed the decision of the National Company Law Tribunal, Hyderabad (for short NCLT Hyderabad ) which had approved its resolution plan and instead remanded the proceedings to NCLT Hyderab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In the third meeting of CoC, convened on 12th May, 2017, the corporate debtor made a presentation for a resolution plan, giving three options. In that meeting, it was resolved to appoint SBI Capital Markets Limited to determine the sustainable debt of the corporate debtor to enable the creditors to assess the viability of the resolution plan. In the fourth meeting of CoC, held on 27 th June, 2017, the resolution plan submitted by the corporate debtor was reviewed and a draft Techno Economic Viability report by SBI Capital Markets Limited was also considered. It is not necessary to dilate on other aspects discussed and resolved in this meeting. As the statutory period of 180 days for completion of CIRP was to expire, an application was filed before the NCLT Hyderabad for extending the time by a further 90 days. Thus, the NCLT Hyderabad, on 27 th July, 2017, extended further time by 90 days starting from 9 th August, 2017. The sixth meeting of the CoC was held on 24 th August, 2017, when the corporate debtor submitted an expression of interest from AREA Group of Companies, Chandigarh to infuse ₹ 150 Crore in the form of debentures, subject to getting a firm approval from the l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ental Bank of Commerce, having 10.94% voting share, sent an email conveying their in-principle approval to the proposed resolution plan qua revised OTS scheme and that their final approval would be subject to similar approvals from the co-lenders. On the same day, Bank of Maharashtra, having 6.36% voting share, conveyed that they were open to consider the revised resolution plan. The Central Bank of India, having 11.82% voting share, conveyed its disapproval to the revised resolution plan. Resultantly, as on 30 th October, 2017, the voting share of consenting Banks expressly approving the proposed resolution plan was only 66.67% and the voting share of dissenting lender Banks was 26.97%. Maharashtra Bank, having 6.36% voting share, had not either approved, rejected or abstained from voting but had conveyed that they remained open to consider the resolution plan. The fact remains that the proposed resolution plan did not garner approval of not less than 75% of voting share of the financial creditors until the resolution professional (IRP) filed an affidavit before the adjudicating authority (NCLT Hyderabad) on 3rd November, 2017, submitting the outcome of the 9 th CoC meeting. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 673 of 2018. 8. The second set of appeals pertain to the corporate debtor- IIL, being Civil Appeal No.10719 of 2018 filed by the promoter of the corporate debtor who holds 21.82% shares and was the erstwhile Chairman and Managing Director of the company. Civil Appeal No.10971 of 2018 is filed by the workers union of the same corporate debtor, namely, Innoventive Industries Kamgar Sanghathana. The workers union has filed another appeal arising from SLP (C) No.29181 of 2018 against the judgment and order dated 24th September, 2018 passed by the High Court of Judicature at Bombay in Writ Petition (C) No.136 of 2018, filed by them to challenge the judgment passed by the NCLT Mumbai dated 23 rd November, 2017/8th December, 2017, and for directing the Union of India to revive the corporate debtor (IIL) and save it from liquidation by dispensing with the 8% shortfall for touching the criteria of 75% of consent of CoC for the approval of revival as per the provisions of the I B Code. The High Court rejected the writ petition filed by the workers union on the ground that they had an alternative and efficacious remedy against the decision of the Tribunal. In other words, the Special Le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng voting share of not less than 75%. The IRP then filed an application on 12th October, 2017, before the adjudicating authority (NCLT) praying for initiating liquidating process against IIL. The NCLT Mumbai, after considering the submissions of both sides, by order pronounced in court on 23rd November, 2017 and delivered on 8th December, 2017, directed initiation of liquidation proceeding against the corporate debtor (IIL). The appellant in the leading appeal of the second set of appeals, being the former Chairman and Managing Director of the corporate debtor (IIL) had filed an interim application before the NCLT Mumbai praying that the dissenting financial creditors be directed to disclose on oath reasons/basis for, or the decision making process involved in, voting against the resolution plan and a declaration that the dissenting financial creditors voted with malicious intention of liquidation and hence, their votes ought to be ignored. The workers union of the corporate debtor (IIL) had filed an interim application, opposing liquidation of the company. The resolution applicant had also filed an application to allow it to submit a revised resolution plan and to invite a fresh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e w.e.f. 23rd November, 2017 and followed by another amendment brought into force w.e.f. 6 th June, 2018 to the provisions of I B Code and including the amendment to the Regulations of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 brought into force from 4 th July, 2018. For, the same came into force during the pendency of the appeals. Further, the purport of the said amendments posit that the CoC should be objective in its approach and consider the feasibility and viability of the resolution proposal and must assign reasons for approval or rejection of the proposal, as the case may be. Additionally, the requirement of percentage of votes of the financial creditors stood reduced to 66% of voting share which, in the present case, has been fulfilled on account of the approval given by 55.73% in the meeting convened on 27th October, 2017, and followed by in-principle approval conveyed via email on 30th October, 2017, by Oriental Bank of Commerce, having 10.94% voting power. In effect, this argument proceeds on the assumption that the amendments to the Code brought into force w.e.f. 23 rd November, 2017 and in parti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rust of the argument is that the object of the I B Code is resolution rather than liquidation as also the maximization of value of assets of such persons, to promote entrepreneurship. To buttress this argument, reliance is also placed on the report of the Insolvency Law Committee in March 2018. Paragraph 11.6 therein states that in order to further the stated object of the I B Code to promote resolution, the voting share for approval of resolution plan may be reduced to 66%. It is submitted that this should have been taken into account by the NCLAT in reference to the amended provisions brought into force during the pendency of the appeal before it. It is also contended that the adjudicating authority (NCLT) as well as the appellate authority (NCLAT), while approving or rejecting the resolution plan, is duty bound to exercise a judicious mind and be alive to the facts and circumstances of the specific case before it and the socio- economic benefit considering the favourable opinion noted by the resolution professional in his affidavit, that there was every possibility of reviving the corporate debtor. Even as per the report submitted by M/s. Atlas Financial Research Consulting Pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent of fairness and reasonableness into Section 13 of the SARFAESI Act. The court declared that reasons must be given and communicated. This reading in of the principle of fairness and reasonableness, was eventually codified in the form of Section 13(3-A) of that Act. Such interpretation was inexorable in respect of provisions as draconian as Section 30(4), resulting in the inevitable consequence of liquidation of the corporate debtor. The provisions of the I B Code must be so construed as not to be financial creditor centric but to be an inclusive approach where all stakeholders interests are balanced and particularly for exploring the possibility of revival of the corporate debtor and maximisation of the value of assets. In the present case, contends learned counsel, the only plea taken by the dissenting financial creditors before the adjudicating authority (NCLT), was that they had taken a commercial decision and it was not open to judicial scrutiny. Even if it is a commercial decision, contends learned counsel, it must fulfill the test of a reasonable and fair approach to be supported by tangible reasons. In the absence of reasons, the adjudicating authority (NCLT) must exer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he corporate debtor. There is nothing else relevant for discharging the statutory obligation of approving or rejecting the proposed resolution plan. With regard to the second amendment to Section 30(4) of the I B Code which came into effect from 6 th June, 2018, reducing the voting threshold from 75% to 66%, learned counsel contends that even the same operates from the time the section was brought on the statute book. For, the legislature consciously lowered the threshold requirement to 66%. It was to infuse more flexibility in the resolution processes and to maximise the effort for revival of the corporate debtor in the larger public interests. The intention of the Parliament was to cure the mischief that the high threshold was causing; and by reducing it, Parliament intended to encourage revival of the corporate debtor and maximisation of the value of assets and to discourage liquidation resulting in closure of the functioning company on which many stakeholders depended, such as its workers. With regard to the objection to the locus of the appellant being the former Chairman and Managing Director of the corporate debtor, it is contended that the same is raised for the first time, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ember, 2018. He had also invited our attention to the chart given in Economic Survey 2017-18 Volume 2, to contend that there will be hardly any impact if this Court was to remit the case for reconsideration on the basis of the amended provisions by the adjudicating authority (NCLT) and especially because there is ample material on record to indicate that the corporate debtor (IIL) is a viable company and needs to be revived and not liquidated. 13. On the other hand, Mr. Shyam Divan, learned Senior Counsel and Ms. Pragya Baghel countered the above submissions and supported the conclusion reached by the NCLAT that the requirement specified in Section 30(4) of the I B Code is mandatory. They submit that the I B Code has been enacted after the experience of the earlier dispensations. There has been paradigm shift in adopting the new regime regarding the timelines to be observed by all concerned at every stage as predicated in the Code. Be it for the resolution process or liquidation process. Both these processes are intended to be disposed of speedily and in a time-bound manner. The initial time limit provided to revive the company is 180 days from the date of admission of the petit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amount payable by the corporate debtor (IIL) is around ₹ 1435 Crore. He submits that the resolution plan is a complex document unlike a bid or tender document. The professionals associated with the dissenting financial creditors have analysed the same and were of the considered opinion that it is not a feasible and achievable target - rather it is a speculative proposal. The dissenting financial creditors exercised their commercial wisdom after taking into account all the relevant aspects. It is not open to undertake scrutiny of that decision of the dissenting financial creditors. Neither can the IRP nor the adjudicating authority (NCLT) be allowed to sit over the same as a court of appeal. The decision of the dissenting financial creditors reckons various aspects including the confidence about the capacity of the resolution applicant to translate the projected plan into reality as per the timelines specified and the feasibility and viability of the proposal and revival of the company in question. He took us through the relevant provisions including amended provisions and contended that the purpose and intent underlying the amendment was to give prospective effect thereto. H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ken care of as per the statutory command. The sum and substance of the argument is that the adjudicating authority (NCLT) was justified in rejecting the applications filed by the appellants and recorded the factum of rejection of the proposed resolution plan with the inevitable direction to initiate process for liquidation of the company under Section 33 of the I B Code. In that view of the matter, no interference is warranted with the impugned decision of the NCLAT. 15. Ms. Pragya Baghel, appearing for Indian Overseas Bank in the case of corporate debtor (KS PIPL), having voting share of 15.15% and being one of the dissenting financial creditors, would submit that the appellant was disqualified to appeal and that his appeal before NCLAT was limited to the observation regarding the personal guarantee as noted by the NCLT. The fact remains that the resolution plan put to vote did not garner support of the requisite percentage of financial creditors to the extent of not less than 75% of the voting share. The provisions as couched in the I B Code do not permit computation of the voting share percentage by excluding the votes of financial creditors who had abstained. Whereas, there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hority to reckon any other factor (other than specified in Sections 30(2) or 61(3) of the I B Code as the case may be) which, according to the resolution applicant and the stakeholders supporting the resolution plan, may be relevant? 19. This Court in its recent decisions has elaborately adverted to the legislative history and delineated the broad contours of the provisions of the I B Code. The latest being the case of Arcelormittal (supra) followed by B.K. Educational (supra) and Innoventive Industries Limited Vs. ICICI Bank and Another. (2018) 1 SCC 407 In the present case, however, our focus must be on the dispensation governing the process of approval or rejection of resolution plan by the CoC. The CoC is called upon to consider the resolution plan under Section 30(4) of the I B Code after it is verified and vetted by the resolution professional as being compliant with all the statutory requirements specified in Section 30(2). 20. The CoC is constituted as per Section 21 of the I B Code, which consists of financial creditors. The term financial creditor has been defined in Section 5(7) of the I B Code to mean any person to whom a financial debt is owed and includes a pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es not confirm to the requirements referred to in sub-section (1), it may, by an order, reject the resolution plan. (3) After the order of approval under sub-section (1),- (a) the moratorium order passed by the Adjudicating Authority under section 14 shall cease to have effect; and (b) the resolution professional shall forward all records relating to the conduct of the corporate insolvency resolution process and the resolution plan to the Board to be recorded on its database. We may also usefully refer to Section 30(2) as applicable at the relevant time. The same read thus: 30. Submission of resolution plan.- (1) xxx xxx xxx (2) The resolution professional shall examine each resolution plan received by him to confirm that each resolution plan- (a) provides for the payment of insolvency resolution process costs in a manner specified by the Board in priority to the repayment of other debts of the corporate debtor; (b) provides for the repayment of the debts of operational creditors in such manner as may be specified by the Board which shall not be less than the amount to be paid to the operational creditors in the event of a liquidation of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iod of 6 months with a maximum extension of another 90 days or else the chopper comes down and the liquidation process begins. (emphasis supplied) (emphasis supplied) The Court, however, was not called upon to deal with the specific issue that is being considered in the present cases namely, the scope of judicial review by the adjudicatory authority in relation to the opinion expressed by the CoC on the proposal for approval of the resolution plan. 23. In Arcelormittal (supra), the Court adverted to the timelines specified in the Code and the consequences thereof in paragraphs 73 and 74, which read thus: 73. The time limit for completion of the insolvency resolution process is laid down in Section 12. A period of 180 days from the date of admission of the application is given by Section 12(1). This is extendable by a maximum period of 90 days only if the Committee of Creditors, by a vote of 66%, votes to extend the said period, and only if the Adjudicating Authority is satisfied that such process cannot be completed within 180 days. The authority may then, by order, extend the duration of such process by a maximum period of 90 days (see Sections 12(2) and 12(3)). What ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ect such plan. (ix) An appeal from an order approving such plan is only on the limited grounds laid down in Section 61(3). However, an appeal from an order rejecting a resolution plan would also lie under Section 61. (x) As has been stated hereinbefore, the liquidation process gets initiated under Section 33 if, (1) either no resolution plan is submitted within the time specified under Section 12, or a resolution plan has been rejected by the Adjudicating Authority; (2) where the Resolution Professional, before confirmation of the resolution plan, intimates the Adjudicating Authority of the decision of the Committee of Creditors to liquidate the corporate debtor; or (3) where the resolution plan approved by the Adjudicating Authority is contravened by the concerned corporate debtor. Any person other than the corporate debtor whose interests are prejudicially affected by such contravention may apply to the Adjudicating Authority, who may then pass a liquidation order on such application. (emphasis supplied) 24. Notably, the resolution plan concerning both the corporate debtors, namely KS PIPL and IIL was considered by the concerned CoC in October 2017, and was appr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pression may occurring in Section 30(4) of the I B Code. This argument does not commend to us. In that, the word may is ascribable to the discretion of the CoC - to approve the resolution plan or not to approve the same. What is significant is the second part of the said provision, which stipulates the requisite threshold of not less than seventy five percent of voting share of the financial creditors to treat the resolution plan as duly approved by the CoC. That stipulation is the quintessence and made mandatory for approval of the resolution plan. Any other interpretation would result in rewriting of the provision and doing violence to the legislative intent. 27. It was then contended that the amendment vide Insolvency and Bankruptcy Code Amendment Act, 2018 (Act No.8 of 2018, dated 18th January, 2018) w.e.f. 23rd November, 2017 was to substitute the amended provision, which means that the amended provision stood incorporated as Section 30(4) from the commencement of I B Code. This argument will be dealt with a little later while considering the effect of the amended provisions. For the present, we are adverting to the provisions in the I B Code and the regulations frame ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... solution professional, thirty days before expiry of the maximum period permitted under section 12 for the completion of the corporate insolvency resolution process. (2) The resolution professional shall present all resolution plans that meet the requirements of the Code and these Regulations to the committee for its consideration. (3) The committee may approve any resolution plan with such modifications as it deems fit. (4) The resolution professional shall submit the resolution plan approved by the committee to the Adjudicating Authority with the certification that: (a) the contents of the resolution plan meet all the requirements of the Code and the Regulations; and (b) the resolution plan has been approved by the committee. (5) The resolution professional shall forthwith send a copy of the order of the Adjudicating Authority approving or rejecting a resolution plan to the participants and the resolution applicant. (6) A provision in a resolution plan which would otherwise require the consent of the members or partners of the corporate debtor, as the case may be, under the terms of the constitutional documents of the corporate debtor, sha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... where the voting shall be kept open for twenty four hours from the circulation of the minutes. (emphasis supplied) Concededly, Regulations 25 and 39 must be read in light of Section 30(4) of the I B Code, concerning the process of approval of a resolution plan. For that, the percent of voting share of the financial creditors approving vis- -vis dissenting - is required to be reckoned. It is not on the basis of members present and voting as such. At any rate, the approving votes must fulfill the threshold percent of voting share of the financial creditors. Keeping this clear distinction in mind, it must follow that the resolution plan concerning the respective corporate debtors, namely, KS PIPL and IIL, is deemed to have been rejected as it had failed to muster the approval of requisite threshold votes, of not less than 75% of voting share of the financial creditors. It is not possible to countenance any other construction or interpretation, which may run contrary to what has been noted herein before. 30. Thus understood, no fault can be found with the NCLAT for having recorded the fact that the proposed resolution plan in respect of both the corporate debtors was appro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rder to be sent to the authority with which the corporate debtor is registered. (2) Where the resolution professional, at any time during the corporate insolvency resolution process but before confirmation of resolution plan, intimates the Adjudicating Authority of the decision of the committee of creditors to liquidate the corporate debtor, the Adjudicating Authority shall pass a liquidation order as referred to in sub-clauses (i) (ii) and (iii) of clause (b) of sub-section (1). (3) Where the resolution plan approved by the Adjudicating Authority is contravened by the concerned corporate debtor, any person other than the corporate debtor, whose interests are prejudicially affected by such contravention, may make an application to the Adjudicating Authority for a liquidation order as referred to in sub-clauses (i), (ii) and (iii) of clause (b) of sub-section (1). (4) On receipt of an application under sub-section (3), if the Adjudicating Authority determines that the corporate debtor has contravened the provisions of the resolution plan, it shall pass a liquidation order as referred to in sub-clauses (i), (ii) and (iii) of clause (b) of sub-secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of thorough examination of the proposed resolution plan and assessment made by their team of experts. The opinion on the subject matter expressed by them after due deliberations in the CoC meetings through voting, as per voting shares, is a collective business decision. The legislature, consciously, has not provided any ground to challenge the commercial wisdom of the individual financial creditors or their collective decision before the adjudicating authority. That is made non- justiciable. 34. In the report of the Bankruptcy Law Reforms Committee of November 2015, primacy has been given to the CoC to evaluate the various possibilities and make a decision. It has been observed thus: The key economic question in the bankruptcy process When a firm (referred to as the corporate debtor in the draft law) defaults, the question arises about what is to be done. Many possibilities can be envisioned. One possibility is to take the firm into liquidation. Another possibility is to negotiate a debt restructuring, where the creditors accept a reduction of debt on an NPV basis, and hope that the negotiated value exceeds the liquidation value. Another possibility is to sell the firm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ise. The professional will manage the resolution process of negotiation to ensure balance of power between the creditors and debtor, and protect the rights of all creditors. The professional will ensure the reduction of asymmetry of information between creditors and debtor in the resolution process. IV. The Code will ensure a collective process. (9) The law must ensure that all key stakeholders will participate to collectively assess viability. The law must ensure that all creditors who have the capability and the willingness to restructure their liabilities must be part of the negotiation process. The liabilities of all creditors who are not part of the negotiation process must also be met in any negotiated solution. V. The Code will respect the rights of all creditors equally. (10) The law must be impartial to the type of creditor in counting their weight in the vote on the final solution in resolving insolvency. VI. The Code must ensure that, when the negotiations fail to establish viability, the outcome of bankruptcy must be binding. (11) The law must order the liquidation of an enterprise which has been found unviable. This outcome ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e proceedings would be circumscribed in that regard and more particularly on account of Section 32 of the I B Code, which envisages that any appeal from an order approving the resolution plan shall be in the manner and on the grounds specified in Section 61(3) of the I B Code. Section 61(3) of the I B Code reads thus: 61. Appeals and Appellate Authority.-(1) Notwithstanding anything to the contrary contained under the Companies Act, 2013 (18 of 2013), any person aggrieved by the order of the Adjudicating Authority under this part may prefer an appeal to the National Company Law Appellate Tribunal. (2) xxx xxx xxx (3) An appeal against an order approving a resolution plan under section 31 may be filed on the following grounds, namely:- (i) the approved resolution plan is in contravention of the provisions of any law for the time being in force; (ii) there has been material irregularity in exercise of the powers by the resolution professional during the corporate insolvency resolution period; (iii) the debts owed to operational creditors of the corporate debtor have not been provided for in the resolution plan in the manner specified by the Board; ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Further, the jurisdiction bestowed upon the appellate authority (NCLAT) is also expressly circumscribed. It can examine the challenge only in relation to the grounds specified in Section 61(3) of the I B Code, which is limited to matters other than enquiry into the autonomy or commercial wisdom of the dissenting financial creditors. Thus, the prescribed authorities (NCLT/NCLAT) have been endowed with limited jurisdiction as specified in the I B Code and not to act as a court of equity or exercise plenary powers. 39. In our view, neither the adjudicating authority (NCLT) nor the appellate authority (NCLAT) has been endowed with the jurisdiction to reverse the commercial wisdom of the dissenting financial creditors and that too on the specious ground that it is only an opinion of the minority financial creditors. The fact that substantial or majority percent of financial creditors have accorded approval to the resolution plan would be of no avail, unless the approval is by a vote of not less than 75% (after amendment of 2018 w.e.f. 06.06.2018, 66%) of voting share of the financial creditors. To put it differently, the action of liquidation process postulated in Chapter-III of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of having consciously not stipulated that as a ground - to challenge the commercial wisdom of the minority (dissenting) financial creditors. Concededly, the process of resolution plan is necessitated in respect of corporate debtors in whom their financial creditors have lost hope of recovery and who have turned into non-performer or a chronic defaulter. The fact that the concerned corporate debtor was still able to carry on its business activities does not obligate the financial creditors to postpone the recovery of the debt due or to prolong their losses indefinitely. Be that as it may, the scope of enquiry and the grounds on which the decision of approval of the resolution plan by the CoC can be interfered with by the adjudicating authority (NCLT), has been set out in Section 31(1) read with Section 30(2) and by the appellate tribunal (NCLAT) under Section 32 read with Section 61(3) of the I B Code. No corresponding provision has been envisaged by the legislature to empower the resolution professional, the adjudicating authority (NCLT) or for that matter the appellate authority (NCLAT), to reverse the commercial decision of the CoC muchless of the dissenting financial credito ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to question the logic or justness of the commercial opinion expressed by the majority of the financial creditors albeit by requisite percent of voting share to approve the resolution plan; and in the process authorize the adjudicating authority to reject the approved resolution plan upon accepting such a challenge. That is not the scope of jurisdiction vested in the adjudicating authority under Section 31 of the I B Code dealing with approval of the resolution plan. 45. To put it differently, since none of the grounds available under Section 30(2) or Section 61(3) of the I B Code are attracted in the fact situation of the present case, the Adjudicating Authority (NCLT) as well as the Appellate Authority (NCLAT) had no other option but to record that the proposed resolution plan concerning the respective corporate debtor (KS PIPL and IIL) stood rejected. Further, as no alternative resolution plan was approved by the requisite percent of voting share of the financial creditors before the expiry of the statutory period of 270 days, the inevitable sequel is to pass an order directing initiation of liquidation process against the concerned corporate debtor in the manner specified in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... insertion of words after considering its feasibility and viability, and such other requirements as may be specified by the Board . In addition, three provisos have been added to sub-section (4). For considering the issue on hand, the three provisos are not relevant. As regards the insertion of the above quoted words in sub-section (4), that does not alter the requirement regarding approval of a resolution plan, by a vote of not less than 75% of voting share of the financial creditors. The amendment is only to declare that the financial creditors ought to consider the feasibility and viability and such other requirements as may be specified by the Board, while exercising their option on the resolution plan - to approve or not to approve the same. It is rudimentary that the financial creditors (in most cases are national Bankers), who are called upon to consider the proposed resolution plan would take into account all the relevant materials, including the feasibility and viability and such other requirements as may be specified by the Board. Additionally, the financial creditors are also required to bear in mind that the legislative intent is to bring about resolution and revival of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eshold requirement of 75% to 66% and since the same has been brought into force when appeals were pending, the NCLAT was obliged to consider its effect on the present cases. Further, being substitution, it must be assumed that the amended provision was always there from the beginning of the Code. 51. We are not impressed by this submission. In our opinion, by this amendment, a new norm and qualifying standard for approval of a resolution plan has been introduced. That cannot be treated as a declaratory/clarificatory or stricto sensu procedural matter as such. Whereas, the stated Amendment Act makes it expressly clear that it shall be deemed to have come into force on the 6 th day of June, 2018. Thus, by mere use of expression substituted in Section 23(iii) (a) of the Amendment Act of 2018, it would not make the provision retrospective in operation or having retroactive effect. This interpretation is reinforced by the fact that there is no indication in the Amendment Act of 2018 that the legislature intended to undo and/or govern the decisions already taken by the CoC of the concerned corporate debtors prior to 6-06-2018. 52. Our attention was invited to the report of the In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 75 percent in value of creditors or class of creditors or members or class of members, as the case maybe. (b) Section 262 of the CA 201378 provided for a scheme of rehabilitation which required approval by (i) secured creditors representing 75 percent in value of the debts owed by the company to such creditors; and (ii) unsecured creditors representing 25 percent in value of the amount of debt owed to them. Further, in case of voluntary winding up, section 311 of the CA 2013 provided for replacement of the company liquidator by approval of 75 percent of creditors or 75 percent of members of the company.79 (c) The Joint Lender s Forum ( JLF ) framework formulated by the RBI (which has now been replaced) to enable creditors to identify and deal with stressed assets at an early stage prescribed a voting threshold of 60 percent (reduced from 75 percent) of creditors by value and 50 percent (reduced from 60 percent) of creditors by number in the JLF, for proceeding with the restructuring of the account.80 (d) Section 13(9) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 provided that in the case of financing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hare of the financial creditors. (emphasis in para 11.3 supplied) 53. Significantly, the report mentions that the empirical record suggests that the apprehension regarding companies are being put into liquidation by minority creditors is pre- mature and further that the objective of the Code is to respect the commercial wisdom of the CoC. As aforesaid, the amendment of 2018 cannot be considered as clarificatory but it envisages a new norm of threshold for considering the decision of the CoC as approval of the resolution plan. The Amendment Act of 2018 having come into force w.e.f. 6 th day of June, 2018, therefore, will have prospective application and apply only to the decisions of CoC taken on or after that date concerning the approval of resolution plan. 54. Reliance was placed by the resolution applicants and the stakeholders supporting the resolution plan of the concerned corporate debtors, on the decisions of this Court in Gottumukkala Venkata Krishamraju (supra), B.K. Educational Services Private Ltd. (supra), and State Bank of India (supra). In the case of Gottumukkala (supra), this Court, after adverting to the dictum in Government of India Vs. India Tobacco Assoc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Anr. (2012) 7 SCC 462 in paragraphs 51, which reads thus: 51. There is no doubt about the fact that the Act is a substantive law as vested rights of entitlement to a higher rate of interest in case of delayed payment accrues in favour of the supplier and a corresponding liability is imposed on the buyer. This Court, time and again, has observed that any substantive law shall operate prospectively unless retrospective operation is clearly made out in the language of the statute. Only a procedural or declaratory law operates retrospectively as there is no vested right in procedure. (emphasis supplied) It may be useful to notice the exposition in CIT Vs. Vatika Township (P) Ltd. (2015) 1 SCC 1 In paragraph 29, the Court observed thus: 29. The obvious basis of the principle against retrospectivity is the principle of fairness , which must be the basis of every legal rule as was observed in L Office Cherifien des Phosphates v. Yamashita-Shinnihon Steamship Co. Ltd.7 Thus, legislations which modified accrued rights or which impose obligations or impose new duties or attach a new disability have to be treated as prospective unless the legislative intent is clearly to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ade under Section 7 and/or Section 9 of the Code on and from its commencement on 01-12-2016 till 06-06-2018. That question was examined in the context of Section 238-A inserted in the I B Code by the self-same amendment Act of 2018. The Court after adverting to the contents of the report of the Insolvency Law Committee of March, 2018 and other provisions of the Code and other enactments, opined that Section 238-A was clarificatory in nature and being a procedural law, came to hold that it had retrospective effect. The Court held that taking any other view would result in an incongruous situation as the provisions of the Limitation Act would apply in some set of cases to be decided by the same Tribunal and not in other set of cases. Besides, the Court adverted to the principle that right to sue accrues on the date when default occurs and if the default occurred even three years prior to the date of filing of the application, the same cannot be treated as debt that is due and payable or debt due. 57. In the case of State Bank of India (supra), the Court considered the question as to whether Section 14 of the I B Code, which provides for moratorium for the period mentioned in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n matrix to identify the best resolution plan and may approve it with such modification as it deems fit: PROVIDED that the committee shall record the reasons for approving or rejecting a resolution plan. 60. In the first place, amendment to regulation cannot have retrospective effect so as to impact the decision of the CoC of the concerned corporate debtor taken before the amendment of the said regulation. There is no indication in the Code as amended or the regulations to suggest that as a consequence of this amendment the decisions aleady taken by the concerned CoC prior to 3rd July, 2018 be treated as deemed to have been vitiated or for that matter, necessitating reversion of the proposal to CoC for recording reasons, that too beyond the statutory period of 270 days. A new life cannot be infused in the resolution plan which did not fructify within the statutory period, by such circuitous route. 61. Assuming that this provision was applicable to the cases on hand, non-recording of reasons for approving or rejecting the resolution plan by the concerned financial creditor during the voting in the meeting of CoC, would not render the final collective decision of CoC ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... some meaningful consideration of the objections raised rather than to ritually reject them and proceed to take drastic measures under sub-section (4) of Section 13 of the Act. Once such a duty is envisaged on the part of the creditor it would only be conducive to the principles of fairness on the part of the banks and financial institutions in dealing with their borrowers to apprise them of the reason for not accepting the objections or points raised in reply to the notice served upon them before proceeding to take measures under sub-section (4) of Section 13. Such reasons, overruling the objections of the borrower, must also be communicated to the borrower by the secured creditor. It will only be in fulfillment of a requirement of reasonableness and fairness in the dealings of institutional financing which is so important from the point of view of the economy of the country and would serve the purpose in the growth of a healthy economy. It would certainly provide guidance to the secured debtors in general in conducting the affairs in a manner that they may not be found defaulting and being made liable for the unsavoury steps contained under sub- section (4) of Section 13. At the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted manifest error in not calling upon the dissenting financial creditors to respond to the applications filed in the concerned appeals pending before it, including with a prayer to allow the resolution applicant to revise the resolution plan. We find no merits in this submission. The reliefs claimed in the stated application filed before the NCLAT would not take the matter any further. For, it is enough for the dissenting financial creditors to disapprove the proposed resolution plan by voting as per its voting share, based on commercial decision. Indeed, if the opposition of the dissenting financial creditors is in regard to matter(s) within the jurisdiction of the Tribunal ascribable to Sections 30(2) or 61(3), then the situation may be somewhat different. But that is not in issue in these cases. 64. As regards the application by the resolution applicant for taking his revised resolution plan on record, the same is also devoid of merits inasmuch as it is not open to the Adjudicating Authority to entertain a revised resolution plan after the expiry of the statutory period of 270 days. Accordingly, no fault can be found with the NCLAT for not entertaining such application. 6 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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