2018 (10) TMI 232 - Tri - Insolvency and Bankruptcy

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

Nikhil Mehta And Sons (HUF) And Ors. Versus M/s. AMR Infrastructure Ltd.

The Tribunal resolved a deadlock arising from low participation of Real Estate (Commercial) and Real Estate (Residential) creditors in voting, ... Corporate insolvency process - resolution deemed to be passed - deadlock created by the low percentage of votes cast by a new category of financial creditor - Real Estate (Commercial) and Real Estate (Residential) - Whether threshold of Voting shares’ in respect of the class of Financial Creditors Real Estate (Commercial) and Real Estate (Residential) as provided in various provisions of the Code (e.g. section 22(2) provides threshold of 66%) is mandatory - Held that:- 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. In choosing the authorised representative each one of them is not to participate for various reasons. Probably it is for the aforesaid reasons that in Regulation 16A of Insolvency and Bankruptcy Board of India (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-110085 is appointed as resolution professional who was earlier worked as interim resolution professional. 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.