Tribunal Resolves Deadlock in Real Estate Creditor Voting, Interprets Thresholds as Directory

The Tribunal resolved a deadlock arising from low participation of Real Estate (Commercial) and Real Estate (Residential) creditors in voting, interpreting voting thresholds as directory rather than mandatory. Despite not meeting the 66% majority, the Tribunal appointed the Interim Resolution Professional (IRP) as Resolution Professional (RP) and ratified agenda items such as IRP costs and changing management of a subsidiary based on the highest percentage of votes cast. This decision aimed to facilitate the Corporate Insolvency Resolution Process (CIRP) and promote resolution over liquidation.

---

---

Issues Involved:
1. Deadlock due to low percentage of votes cast by Real Estate (Commercial) and Real Estate (Residential) financial creditors.
2. Interpretation of voting thresholds under the Insolvency and Bankruptcy Code, 2016.
3. Appointment of Interim Resolution Professional (IRP) as Resolution Professional (RP).
4. Ratification of IRP costs and other related expenses.
5. Raising interim finance and changing management of a subsidiary.

Issue-Wise Detailed Analysis:

1. Deadlock Due to Low Percentage of Votes Cast by Real Estate Creditors:
The application under Section 60(5) of the Insolvency and Bankruptcy Code, 2016 (IBC) raised the issue of a deadlock created by the low percentage of votes cast by financial creditors in the Real Estate (Commercial) and Real Estate (Residential) categories. These classes of creditors were recognized by the IBC Amendment Act of 2018, effective from 06.06.2018. Despite efforts by the Interim Resolution Professional (IRP) and Authorised Representatives to facilitate voting, only a small percentage of creditors participated, resulting in a deadlock.

2. Interpretation of Voting Thresholds Under the IBC:
The Tribunal examined whether the voting thresholds specified in various sections of the IBC, particularly Section 22(2), which requires a 66% majority, are mandatory. The Tribunal noted that the expression "may" in Section 22(2) does not affect the requirement of a 66% majority vote. The court emphasized the need to interpret the provisions in a manner that sustains the constitutional validity and makes the statute workable, aligning with the objective of promoting resolution over liquidation.

3. Appointment of IRP as RP:
The IRP, Mr. Vikram Bajaj, was appointed as the Resolution Professional (RP) despite the deadlock. The Tribunal noted that only 32.56% of the total voting shares were in favor of appointing the IRP as RP, which was below the required 66%. However, considering the unique circumstances and the need to avoid liquidation, the Tribunal approved the appointment based on the highest percentage of votes cast.

4. Ratification of IRP Costs and Other Related Expenses:
The Tribunal addressed the ratification of IRP costs and other related expenses, which also faced a voting deadlock. The Tribunal deemed these agenda items approved, considering the majority of votes cast in favor, despite not meeting the 66% threshold. This decision was made to ensure the continuation of the Corporate Insolvency Resolution Process (CIRP).

5. Raising Interim Finance and Changing Management of a Subsidiary:
The Tribunal also addressed the issue of raising interim finance and changing the management of a subsidiary where the corporate debtor holds a 99% shareholding. These agenda items faced similar voting challenges. The Tribunal deemed these items approved based on the majority of votes cast, ensuring the CIRP could proceed without further hindrance.

Conclusion:
The Tribunal resolved the deadlock by interpreting the voting thresholds as directory rather than mandatory in cases where Real Estate (Commercial) and Real Estate (Residential) creditors constitute 100% of the Committee of Creditors (CoC). The Tribunal approved the appointment of the IRP as RP and ratified other agenda items based on the highest percentage of votes cast, ensuring the continuation of the CIRP and aligning with the objective of promoting resolution over liquidation.

---