2019 (2) TMI 1672 - Tri - Companies Law

Tribunal upholds COC meeting resolutions under Insolvency and Bankruptcy Code, 2016

The Tribunal declared Resolutions No. 4 and 7 of the 5th Committee of Creditors (COC) meeting as approved by 59.21% of the financial creditors, meeting ... Declaration of Resolution No. 4 and 7 of COC put for E- voting on 19th and 20th of July, 2018 to have been passed/ approved by requisite majority under the provisions of IBC, 2016 - whether Resolution No. 7 of 5th COC meeting deals with changes in the appointment /terms of contract of statutory auditors or internal auditors of corporate debtor? - HELD THAT:- Resolution NO. 7 which was considered by COC is for conducting of forensic audit of corporate debtor. This resolution is not for making the changes in the appointment/ terms of contract of statutory auditors or internal auditors of corporate debtor. Resolution No. 7 is for taking steps for conducting forensic audit of the accounts of corporate debtor. Resolution No. 7 does not fall with in Sec 28(1)(m) of the code. If it does not fall under any of the provisions of Section 28 of the code then for its approval it needs to be approved by a voting of not less than 51% of Financial Creditors. There is no dispute Resolution N07 of 5th COC was approved by Financial Creditors having voting share of 59.21% . The Scrutinizer report is filed, it shows Resolution No. 7 is approved by Financial Creditors having 59.21% voting share. Similarly Resolution No.4 also does not fall in any of the categories mentioned in sec 28(1). Therefore it needs for approval by Financial Creditors having 51% of voting share. This resolution was also approved by Financial Creditors having the voting share of 59.21%. Therefore two resolutions shall be declared to have been passed by requisite voting share of the Financial Creditors. The application is allowed declaring that Resolution No.4& 7 of 5th COC are declared to have been passed by a requisite voting share of Financial Creditors of COC. Issues Involved:1. Validity of Resolutions No. 4 and 7 of the Committee of Creditors (COC) meeting.2. Voting percentage required for approval of resolutions under the Insolvency and Bankruptcy Code (IBC), 2016.3. Conduct and decisions of the Resolution Professional (RP).4. Inclusion of new financial creditors in the COC.5. Management of the Virtual Data Room (VDR) by the RP.Analysis:1. Validity of Resolutions No. 4 and 7 of the Committee of Creditors (COC) meeting:The application was filed by the Asset Reconstruction Company (India) Limited against the Resolution Professional (RP) and Viceroy Hotels Limited, seeking to declare Resolutions No. 4 and 7 of the COC meeting held on July 19-20, 2018, as approved by the requisite majority under the IBC, 2016. The resolutions in question pertained to the conduct of a forensic audit of the Corporate Debtor and other related matters.2. Voting percentage required for approval of resolutions under the Insolvency and Bankruptcy Code (IBC), 2016:The applicant contended that as per Section 21(8) of the IBC, 2016, all decisions of the COC should be taken by a vote of not less than 51% of the voting share of the financial creditors. The RP, however, argued that for certain matters specified under Section 28(1) of the IBC, a 66% majority is required. The Tribunal noted that Resolutions No. 4 and 7 did not fall under any of the categories specified in Section 28(1) and hence required only a 51% majority for approval. As per the scrutinizer's report, both resolutions were approved by 59.21% of the voting share.3. Conduct and decisions of the Resolution Professional (RP):The applicant accused the RP of applying different formulas for determining the approval of resolutions and acting arbitrarily to favor certain parties. The RP was also accused of not cooperating with the process advisor and providing misleading information in the VDR, which affected the valuation of the Corporate Debtor's assets. The RP, in defense, stated that all actions were taken in compliance with the law and that the petitioner was creating hurdles in the CIRP process.4. Inclusion of new financial creditors in the COC:The applicant challenged the inclusion of certain new financial creditors in the COC, alleging that they were wrongly inducted. The RP countered this by stating that the inclusion was done after proper verification and scrutiny of claims. The Tribunal did not find substantial evidence to support the applicant's allegations.5. Management of the Virtual Data Room (VDR) by the RP:The applicant alleged that the RP wanted full control over the VDR to upload incorrect or misleading information, which led to potential resolution applicants backing out. The RP argued that the VDR management was within legal parameters and that any issues were due to non-cooperation from the process advisor, IMAP India Ltd.Judgment:The Tribunal declared that Resolutions No. 4 and 7 of the 5th COC meeting were approved by the requisite voting share of 59.21% of the financial creditors. The application was allowed, and the resolutions were deemed to have been passed under the provisions of the IBC, 2016. The application was accordingly disposed of.