Section 30 (4) of the Insolvency and Bankruptcy Code("IBC/Code") that deals with Submission of resolution plan is in the midst of spotlight because of opposite views taken by Adjudicating Authority at Mumbai, NCLT Mumbai1 and Adjudicating Authority at Hyderabad, NCLT Hyderabad2. It will be apt to produce the relevant section of the code at this stage
"...The committee of creditors may approve a resolution plan by a vote of not less than seventy five per cent of voting share of the financial creditors..."
The moot point of legal debate that emerged in the two orders of two Adjudicating Authorities was whether the approval by a committee of creditors (CoC) is of a mandatory nature i.e. no resolution plan can be valid without an approval of seventy five percent of voting share of financial creditors or it "may" be approved by a CoC by a majority of less than seventy five per cent and finally accepted by the adjudicating authority using its discretion under Section 31 (2) of the code. The view taken by the two benches is as follows:
ADJUDICATING AUTHORITY, NCLT MUMBAI
The Bombay bench of NCLT framed the issue whether the adjudicating authority has jurisdiction to exercise over a decision taken by CoC as contemplated in the Code. The Bench delved into the overall scheme of the Code and observed that it has been replete in the provisions of the Code mandating resolution approved by CoC means a resolution with vote not less than 75% of the voting share of CoC, and when for passing a resolution, a cap is set out as an inbuilt measure in a statute without leaving any ambiguity to the judiciary, the Adjudicating authority does not have any jurisdiction to alter the cap given by the legislation. Section 21 (8) was pressed into assistance for the proposition that in addition to all other sections wherever 75% voting aspect has been mentioned to the resolution of CoC, it has been categorically mentioned that all decisions of CoC shall be passed with vote not less than 75% of voting share of Financial Creditors.
The Bench hereinafter elucidated on the aspect as to how the Insolvency and Bankruptcy Code came into force for consolidation of various laws so as to have a single law for insolvency and bankruptcy. The proposition that reorganization or restructuring is the primacy of the Code was negative as there were many attempts like SICA, JLF which all failed. The Bench observed that the phrase "insolvency resolution of corporate persons" mentioned in the statement is inclusive of liquidation process for which the mandate of the statute, objects of the enactment and the report of the Committee who drafted the legislation was referred. The raison d'être for leaving everything to the domain of creditors according to the bench is because their stake is stuck in the Corporate Debtor and therefore they are the right persons to take a decision on their stake. In light of this, it was observed that the creditors had to attain super majority to take any decision in respect to sacrifice of their rights.
Furthermore the bench rescued itself from interpreting the provisions with any purposive interpretation when the terms are clear and straight and left that prerogative to NCLAT & the Apex Court i.e. Hon'ble Supreme Court.
NCLT HYDERABAD
The Hyderabad bench however took a diametrically opposite view on the moot point. The order of the Bench has been dissected under three heads. Firstly, it was held that the IBC is a new concept evolved with a certain objects to achieve in financial sector and timelines. Thus, bankers are duty bound to refer to instruction/guidelines issued by RBI from time to time for insolvency of a Company. As a result RBI circular N o . R B I / 2 0 1 6 - 1 7 / 2 9 9 / D B R . B P . B C .
No.67/21/.04.048/2016-17; dated 5th May, 2017 in which it is stressed for early identification of stressed Assets and timely implementation of a Corrective Action Plan to preserve the economic value of stressed assets was referred. In para 4 of the Notification, RBI changed the percentages and Number required for Approval of a corrective action plan.,
"...the decisions agreed upon by a minimum of in the JLF would be 60 percent of creditors by value and 50 percent of creditors by number..."
Secondly, in contradistinction with the Mumbai Bench it was concluded that the main preamble of the IBC is the resolution of the Corporate Debtor rather than the liquidation of the Corporate Debtor. Finally, relying on the word "may" in Section 30(4) it was observed that the CoC can approve a plan with less than 75 percent too and it was incumbent upon the Adjudicating Authority to use its judicial discretion under Section 31
(2) to approve or reject the plan when it doesn't touch the ceiling of 75 percent wherein it had to consider the spirit of the code and to grant due consideration for the socio economic benefit/cause/etc. The Bench was swayed by the consideration that the Corporate Debtor was located in a remote district and was providing job opportunities to the marginalized sections of the society.
It is hoped that the appellate forums will provide much needed clarity to this crucial provisions to balance the interest of all stakeholders in the insolvency resolution process.
Footnotes
1 CP (IB) No. 11/10/HDB/2017
2 MA 557,530,529 & 590/2017,IA 72/2017 in C.P 01/I&BP/2016
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