2019 (2) TMI 1043 - SC - IBC

Supreme Court rules amended IBC voting thresholds cannot apply retrospectively to crystallized rights

The SC upheld NCLAT's rejection of resolution plans where voting share thresholds were not met under the original IBC provisions. The Court held that ... Rejection of the resolution plan - resolution plan of the concerned corporate debtor(s) has not been approved by requisite percent of voting share of the financial creditors - initiation of liquidation process under Chapter III of Part II of the I&B Code - qualifying standard for approval of a resolution plan - HELD THAT:- In the present case, the amendment under consideration pertaining to Section 30(4), is to modify the voting share threshold for decisions of the CoC and cannot be treated as clarificatory in nature. It changes the qualifying standards for reckoning the decision of the CoC concerning the process of approval of a resolution plan. The rights/obligations crystallized between the parties and, in particular, the dissenting financial creditors in October 2017, in terms of the governing provisions can be divested or undone only by a law made in that behalf by the legislature. In the present case, we 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 30(2) or 61(3), then the situation may be somewhat different. But that is not in issue in these cases. 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. The counsel appearing for the resolution applicant and the stakeholders supporting the resolution plan were at pains to persuade us to exercise powers under Article 142 of the Constitution of India. Inasmuch as, in both the cases, the vote of approval exceeded more than 66% of the voting share of the financial creditors and yet the benefit of the amended provision could not be availed, as it came only during the pendency of the appeal before the NCLAT. The submission is that this Court may set aside the order passed by the Tribunal and relegate the parties in both the cases, before the NCLT for considering the proceedings afresh in light of the amended provision reducing the threshold requirement of percent of voting share of financial creditors to 66%. We are afraid, it is not possible for us to exercise powers under Article 142 of the Constitution which will result in issuing directions in the teeth of the provisions as applicable to the cases on hand. We, therefore, decline to accede to this request. Having answered the core issues and to avoid prolixity, we do not wish to dilate on the exposition in other reported decisions relied upon by the counsel. As a result, we hold that the NCLAT has justly concluded in the impugned decision that the resolution plan of the concerned corporate debtor(s) has not been approved by requisite percent of voting share of the financial creditors; and in absence of any alternative resolution plan presented within the statutory period of 270 days, the inevitable sequel is to initiate liquidation process under Section 33 of the Code. That view is unexceptional. Resultantly, the appeals must fail. Issues Involved:1. Whether the requirement of 75% voting share for approval of a resolution plan under Section 30(4) of the Insolvency and Bankruptcy Code (I&B Code) is mandatory.2. Whether the amendments to Section 30(4) and related regulations have retrospective or prospective effect.3. The scope of judicial review by the adjudicating authority (NCLT) and appellate authority (NCLAT) regarding the commercial wisdom of the Committee of Creditors (CoC).4. The implications of the dissenting financial creditors not recording reasons for rejecting the resolution plan.Issue-wise Detailed Analysis:1. Mandatory Requirement of 75% Voting Share:The Supreme Court held that the requirement of 75% voting share for the approval of a resolution plan under Section 30(4) of the I&B Code is mandatory. The term 'may' in Section 30(4) refers to the discretion of the CoC to approve or reject the resolution plan, but the threshold of 'not less than seventy-five percent of voting share of the financial creditors' is mandatory. The court emphasized that any other interpretation would result in rewriting the provision and doing violence to the legislative intent.2. Retrospective or Prospective Effect of Amendments:The court examined the amendments to Section 30(4) and related regulations. It concluded that the amendments, including the reduction of the voting share threshold from 75% to 66%, are prospective. The amendments came into effect on 6th June 2018 and cannot be applied retrospectively to decisions made by the CoC before this date. The court stated that there is no indication that the legislature intended to undo the decisions already taken by the CoC prior to the amendment.3. Scope of Judicial Review:The Supreme Court held that neither the NCLT nor the NCLAT has the jurisdiction to reverse the commercial wisdom of the dissenting financial creditors. The court emphasized that the commercial decisions of the CoC are non-justiciable and that the adjudicating authority's role is limited to ensuring compliance with the requirements specified in Section 30(2) of the I&B Code. The court reiterated that the commercial wisdom of the financial creditors, expressed through their voting share, is paramount and cannot be questioned by the adjudicating authority.4. Recording Reasons for Rejecting the Resolution Plan:The court addressed the issue of dissenting financial creditors not recording reasons for rejecting the resolution plan. It noted that, as per the provisions applicable in October 2017, there was no requirement for dissenting financial creditors to record reasons for their decision. The requirement to record reasons was introduced by an amendment to the regulations effective from 4th July 2018. The court held that non-recording of reasons by dissenting financial creditors does not vitiate their decision, as the commercial decisions of financial creditors are non-justiciable.Conclusion:The Supreme Court upheld the decisions of the NCLAT, confirming that the resolution plans for the corporate debtors KS&PIPL and IIL were not approved by the requisite percentage of voting share of the financial creditors. Consequently, the initiation of the liquidation process was deemed appropriate. The court dismissed the appeals and companion applications, reiterating that the commercial wisdom of the CoC is paramount and non-justiciable.