2025 (8) TMI 868 - AT - IBC

IBC Section 30(4) Requires 66% Approval of All Financial Creditors for Resolution Plans, Not Just Voters

Saariga Construction Pvt. Ltd. Versus Arvind Kumar, RP, Richa Industries Ltd. & Anr.

Saariga Construction Pvt. Ltd. Versus Arvind Kumar, RP, Richa Industries Ltd. & Anr. - TMI 1. ISSUES PRESENTED and CONSIDERED 1. Whether the Resolution Plan submitted by the appellant was approved by the requisite majority of 66% voting share of Financial Creditors under Section 30(4) of the Insolvency and Bankruptcy Code (IBC), considering the votes of those who abstained from voting. 2. Whether the votes of Financial Creditors who abstained from voting or were not present at the Committee of Creditors (CoC) meeting should be excluded from the denominator while computing the 66% voting share required for approval of the Resolution Plan. 3. The effect of amendments to Section 30(4) of the IBC and the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 (CIRP Regulations), particularly the deletion of Regulation 2(1)(f) and the introduction of electronic voting provisions, on the calculation of voting shares. 4. The applicability and interpretation of the Supreme Court judgment in K. Sashidhar v. Indian Overseas Bank & Ors. regarding the computation of voting shares under Section 30(4) of the IBC. 5. Whether the adjudicating authority erred in rejecting the appellant's application seeking approval of its Resolution Plan and directing liquidation of the Corporate Debtor. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1 & 2: Computation of 66% voting share under Section 30(4) of the IBC and treatment of abstentions and non-present Financial Creditors Relevant Legal Framework and Precedents: - Section 30(4) of the IBC mandates that the Committee of Creditors may approve a Resolution Plan by a vote of not less than 66% of the voting share of the Financial Creditors, after considering its feasibility and viability. - Prior to amendment, the threshold was 75%; post-amendment, it is 66%. - Regulation 2(1)(f) of the CIRP Regulations originally defined 'dissenting Financial Creditor' to include those voting against the plan; this definition was amended to include those abstaining from voting. - Regulations 25 and 26 of the CIRP Regulations provide for voting procedures, including electronic voting for members not present at the meeting. - Section 25A(3A) of the IBC refers to voting by authorised representatives and the concept of votes cast. - Supreme Court judgment in K. Sashidhar v. Indian Overseas Bank & Ors. interpreted Section 30(4), holding that the 75% (now 66%) voting share must be computed on the total voting share of all Financial Creditors, including those who abstain or do not participate in voting, rejecting the 'present and voting' concept. Court's Interpretation and Reasoning: - The Court emphasized that the statutory language of Section 30(4) requires approval by 66% of the voting share of all Financial Creditors, without qualification or limitation to those merely 'present and voting.' - The Court rejected the appellant's argument that only votes of those present at the meeting and who voted for or against should be counted, excluding abstentions and absentees from the denominator. - The Court held that no additional words such as 'present and voting' can be read into the statute, as it violates settled principles of statutory interpretation. - The Court noted that CIRP Regulations 25 and 26 mandate electronic voting for Financial Creditors not present at the meeting, further negating the appellant's argument that only votes cast in the meeting count. - The deletion of Regulation 2(1)(f) (defining dissenting Financial Creditors) post-dates the Supreme Court judgment and does not affect the interpretation of Section 30(4) in terms of counting abstentions. - The Court observed that the appellant's reliance on the BLRC Report was misplaced, as the report defers to the Code for voting procedures and majority calculations. Key Evidence and Findings: - The minutes of the 38th CoC meeting and e-voting results showed 52.02% votes in favour, 0.08% against, and 47.90% abstained (including two major banks). - The plan required 66% approval; hence, it failed to meet the threshold even if abstentions were excluded. Application of Law to Facts: - Applying the Supreme Court's interpretation, the 66% threshold must be calculated on the total voting share, including abstentions. - Since the appellant's plan secured only 52.02% in favour, it did not meet the statutory requirement. Treatment of Competing Arguments: - The appellant argued that only votes of those present and voting should be counted, citing the amended Section 30(4) and CIRP Regulation deletion, as well as a prior Tribunal judgment (Tata Steel Ltd. v. Liberty House Group) supporting exclusion of abstentions. - The respondents contended that the entire voting share must be considered, relying on the Supreme Court's binding precedent and statutory provisions mandating electronic voting for absent members. - The Court distinguished the appellant's cited Tribunal judgment as rendered prior to the Supreme Court's authoritative ruling in K. Sashidhar. Conclusions: - The Court held that the 66% voting share requirement under Section 30(4) must be computed on the total voting share of Financial Creditors, including those who abstain or do not vote. - Abstentions and non-participation cannot be excluded from the denominator for calculating the requisite majority. - The appellant's Resolution Plan did not achieve the mandatory 66% approval and was rightly rejected. Issue 3: Effect of amendments to Section 30(4) and CIRP Regulations on voting calculation Relevant Legal Framework and Precedents: - The IBC (Second Amendment) Act, 2018 amended Section 30(4) reducing the approval threshold from 75% to 66% and added the phrase 'after considering its feasibility and viability.' - CIRP Regulations were amended to delete Regulation 2(1)(f) defining dissenting Financial Creditors and introduced electronic voting provisions under Regulations 25 and 26. Court's Interpretation and Reasoning: - The Court found that the amendment to Section 30(4) did not alter the fundamental requirement of approval by 66% of the total voting share of Financial Creditors. - The phrase 'after considering its feasibility and viability' does not impose a requirement that only those present at the meeting can be counted for voting purposes. - The deletion of Regulation 2(1)(f) does not affect the statutory mandate in Section 30(4) and cannot be used to exclude abstentions from the vote count. - Electronic voting provisions ensure that Financial Creditors not present at the meeting can participate in voting, further supporting inclusion of all votes in the calculation. Key Evidence and Findings: - The voting procedure followed included e-voting over an extended period, allowing all Financial Creditors to cast votes. Application of Law to Facts: - The statutory and regulatory framework supports counting all votes, including abstentions and those cast electronically, in the denominator for calculating the 66% threshold. Treatment of Competing Arguments: - The appellant's argument that amendments require only votes of those present is rejected as inconsistent with statutory language and regulatory provisions. Conclusions: - Amendments to Section 30(4) and CIRP Regulations do not support exclusion of abstentions or absentees from the voting share denominator. - The statutory scheme contemplates inclusion of all Financial Creditors' voting shares in the calculation. Issue 4: Applicability and interpretation of the Supreme Court judgment in K. Sashidhar Relevant Legal Framework and Precedents: - The Supreme Court in K. Sashidhar interpreted Section 30(4) and related regulations, holding that the 75% voting share (now 66%) must be computed including abstentions and dissenting votes, rejecting the 'present and voting' test. Court's Interpretation and Reasoning: - The Court affirmed the binding nature of the Supreme Court's ruling and rejected attempts to distinguish it based on subsequent amendments. - The Supreme Court's interpretation aligns with the statutory language and regulatory framework. Key Evidence and Findings: - The Supreme Court's detailed factual and legal analysis in K. Sashidhar is directly applicable and binding. Application of Law to Facts: - The present case facts and voting results fall squarely within the scope of the Supreme Court's ruling. Treatment of Competing Arguments: - The appellant's attempt to distinguish K. Sashidhar based on amendments and regulatory changes is rejected. Conclusions: - The Supreme Court judgment in K. Sashidhar governs the interpretation of Section 30(4) and voting share calculation in this case. - The appellant's plan failed to meet the statutory threshold as interpreted by the Supreme Court. Issue 5: Legality of the adjudicating authority's order rejecting the Resolution Plan and directing liquidation Relevant Legal Framework and Precedents: - Section 33(1) of the IBC authorizes the adjudicating authority to order liquidation if the Resolution Plan is not approved by the requisite majority. - Section 30(6) requires the Resolution Professional to submit the approved Resolution Plan to the adjudicating authority for approval. Court's Interpretation and Reasoning: - Given that the appellant's Resolution Plan did not secure the required 66% voting share, the adjudicating authority was correct in rejecting the plan. - The long-pending liquidation application filed by the Resolution Professional was rightly allowed. Key Evidence and Findings: - Voting results and statutory requirements confirm the plan's rejection. Application of Law to Facts: - The adjudicating authority's order is consistent with the statutory framework and judicial precedents. Treatment of Competing Arguments: - The appellant's challenge to the order is based on an incorrect interpretation of the voting requirement and is therefore unsustainable. Conclusions: - The adjudicating authority's order rejecting the Resolution Plan and directing liquidation is upheld.