TaxTMI 
TaxTMI 
2018 (10) TMI 232
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....nsolvency Resolution Process on 10.05.2018 by this Bench. Mr. Vikram Bajaj was appointed as Interim Resolution Professional. He made a public announcement on 15.05.2018 in terms of Regulation 6(1) of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 (for brevity the 'CIRP Regulations'). The public announcement was published in the 'English Daily' (Business Standard) and its Hindi edition as well. The last date for submission of proof of claim in terms of Regulation 6(2)(c) of CIRP Regulations was 24.05.2018. A copy of the public announcement was duly uploaded on the website of the IBBI and has also been placed on record (Annexure A-2, colly). 3. The applicant- Interim Resolution Professional has taken various steps in discharge of his duties as per the requirement of law which include invitation of verification of claims; collation of information on assets of the company; custody of assets etc. A detailed progress report was filed by the applicant- Interim Resolution Professional and it was taken on record by this Bench on 05.07.2018 (Annexure A3). 4. In pursuance of amendment carried w.e.f 06.06.2018 corresponding Regulations have also been framed ....
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....inancial creditors in Real Estate (residential) representing (16.36 %) Voting shares' had voted. Likewise in the Real Estate (commercial) only 227 financial creditors came forward for voting instructions which represent 36.4%.As such overall voting instructions of 463 financial creditors representing 52.78% voting shares were received by the Authorised Representatives prior to CoC meeting i.e. up to 10:00 AM on 25.08.2018. In view of the second proviso of sub-Section 3 of Section 25A of the Code, 2016 the remaining financial creditors were deemed to have abstain from, voting in the first meeting of the CoC. It has been highlighted that there are no well organised sector constituting financial creditors like banks or financial institutions involved in the case as the project was entirely funded through investments from individual investors on promise of 'assured return'. A summary of agenda item which were placed for decision of the CoC in its first meeting held on 25.08.2018 for voting and the voting thereon has been summed up in the application with the help of the following tables which reflect agenda items Nos. 4, 5, 6, 7, 8 & 9. Agenda Items to be decided by Voting : 4. Ra....
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....proving Resolution Disapproving Resolution Real Estate Residential 16.36% 16.02% 0.34% Real Estate Commercial 36.42% 36.12% 0.30% Total 52.78% 52.14% 0.64% 98.79% of the votes casted have been casted in favour of the resolution and 1.21% of the votes casted have been casted against the resolution. Banking arrangements for AMR Infrastructures Ltd. VOTING Class of Creditors Total Voted Approving Resolution Disapproving Resolution Real Estate Residential 16.36% 15.87% 0.49% Real Estate Commercial 36.42% 35.53% 0.89% Total 52.78% 51.40% 1.38% 97.39% of the votes casted have been casted in favour of the resolution and 2.61% of the votes casted have been casted against the resolution. 7. The aforesaid tables are based on the minutes of the first meeting of the CoC held on 25.08.2018 (Annexure A-7).A perusal of the tables makes it patent that majority of the financial creditors have given voting instructions to their authorised representative in favour of the resolution proposed by the app....
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....reditors who have actively voted and participated in the process and to resolve the consequent deadlock and stalemate; (c) Pass such other or further order/order(s) as may be deemed fit and proper in the facts and circumstances of the instant case." 9. When the application came up for hearing on 05.09.2018, we have noted the issue and also felt that it is likely to arise in a large number of cases. Accordingly, we requested Mr. Sakal Bhushan learned counsel to assist the court in addition to Mr. Abhishek Anand and other counsels representing the IRP and Authorised Representatives. 10. On behalf of the applicant-IRP Mr. Abhishek Anand has submitted that the log-jam has to be broken by interpreting the provisions of the Code and the CIRP Regulations framed by the IBBI. According to the learned counsel the aforesaid tables have depicted a fractured vote sharing pattern for issuing instructions to the Authorised Representatives in respect of ratification of cost of IRP. According to Section 21(8) all decisions of the CoC shall be taken by a vote of not less than 51% of vote sharing of the financial creditors subject to other provisions of the Code which provide different threshold.....
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....ubmitted that the argument advanced by Mr. Anand, would lead to an interpretation which would run contrary to the intention of the legislature as could be gathered from the Code itself and other sources. Accordingly, Mr. Bhushan submitted that an approach which advances the object of the Code would be preferable as has been reiterated by the Hon'ble Supreme Court in Atlas Cycle Industries Ltd. and Ors. v. State of Haryana [1979] 2 SCC 196. 13. Keeping in view the aforesaid, Mr. Bhushan submitted various thresholds mentioned in the Code can be found in Sections 12A(90%), 12(2), 22(2), 27(2), 28(3), 30(4), 33(2) all 66 % and 21(8) 51%. Before the amendment of the Code vide the IBC (Amendment) Ordinance which has been now replaced by IBC (Second Amendment) Act, 2018 w.e.f. 06.06.2018, the threshold was 75 % of the total voting share of the financial creditors in all cases. 14. Learned Amicus submitted that for reviewing the working of the Code after one year of its promulgation, the Government set up the Insolvency Law Committee on 16.11.2017. The Committee submitted its Report to the Government on 28.03.2018. In Para No. 11.5 of the said Report, the committee considered the thresho....
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....f creditors ..................". It is quite manifest that the intention of the legislature is to "promote resolution over liquidation", and thus every effort should be made to interpret the provisions of IBC in such a manner as would advance the very object of the legislation rather than defeating it. 18. Mr. Bhushan then submitted that the various thresholds (90%, 66% or 51%) are only directory in nature. Insistence on the thresholds strictly would only make the provisions of the Code unworkable and would lead to deadlocks thereby pushing the corporate debtors towards imminent liquidation, frustrating the very object of this progressive legislation. Moreover, in Sections 12A, 12(2), 22(2), 27(2) and 30(4), the expression used by the legislature itself is "ma/'. Though in Sections 28(3), 33(2) and 21(8) the expression used is "shall", yet the same can be interpreted to mean "may" in the light of the ratio of law reiterated in the Atlas Cycle Industries' case (supra). Thus construed, it can be safely held by the Tribunal that the various voting thresholds in the IBC are merely directory in nature, and that preference can be given to decisions taken by the largest percentage in the....
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........ 5........................." 20. A bare perusal of section 22(2) would show that an interim resolution professional can be appointed as a resolution professional and the threshold limit of sixty six percent voting shares in the committee of creditors is required for passing a resolution. It is true that the expression 'may' have been used but it does not have any bearing on the expression 'by a majority vote of not less than sixty six percent of the voting shares of the financial creditors'. We feel that the expression 'may' in section 22(2) is associated with the later case 'either resolve to appoint the interim resolution professional as a resolution profession or to replace the interim resolution professional by another resolution professional'. 21. Therefore the use of word 'may' in section 22(2) would not help to decide the issue whether that the provision is mandatory or directory. In fact the emphasis is on the expression 'by a majority vote of not less than sixty six percent of the voting share of the financial creditors'. A reference to other provisions where threshold limit of sixty six percent of 'voting share' has been fixed, would reveal that it is also couched....
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....e. The learned Appellate Tribunal on appeal carved out an exception and provided that in case where 'assured return' in respect of Real Estate (Commercial 85 Residential) is provided in the terms of agreement then on default such category of real estate class would become financial creditors. However, the legislature intervened by promulgating an ordinance on 06.06.2018. In its long title the problem concerning home buyers have been highlighted by observing as under:- " WHEREAS the Insolvency and Bankruptcy Code 2016 (the Code), inter alia, provides for insolvency resolution of corporate persons in a time bound manner for maximisation of value of assets of such persons; AND WHEREAS a need has been felt, inter alia, to balance the interest of various stakeholders in the Code, especially interests of home buyers and micro, small and medium enterprises, promoting resolution over liquidation of corporate debtor by lowering the voting threshold of committee of creditors and streamlining provisions relating to eligibility of resolution applicants...... " In section 5(8) the definition of expression 'financial debt' has been expanded to mean a debt along with the interest if any whic....
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....inancial creditors in one class would amount to merging the unequal for equal treatment. In this regard we may refer to the views of learned author Mr. H.M. Seervai in his celebrated treatise 'Constitutional Law of India' (4th edition). In para 9.8 in the chapter 'Right to Equality" the learned author observed that a law based on permissible classification fulfilsthe guarantee of the equal protection of the laws and is valid; a lawbased on an impermissible classification violates that guarantee and isvoid. Commenting on a view expressed by Justice P.N. Bhagwati in E.P. Royappa v. State of Tamil Nadu & Anr AIR 1974 SC 555,learned author opined in para 9.9 as follows: - "9.9 The new theory involves the fallacy of the undistributed middle. A standard book on Logic explains the fallacy thus: " Consider the following standard from categorical syllogism: All dogs are mammals All dogs are mammals Therefore all cats are dog. The middle terms 'Mammals' is not distributed in either premiss, and this violates Rule 2. (In a valid categorical syllogism, the middle term must be distributed in at least one premiss). Any syllogism which violates Rule 2 is said to commit the Fallacy....
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....red to that which has the effect of destroying it. If we do not read the conferment of the power in the manner we have envisaged before, the power is liable to be struck down as bad...... " The aforesaid extracts from the judgment would suggest that the principle of construction which need to be adopted has to be such that sustain the constitutional validity of a statute rather than leaning in favour of construction which results in declaration of ultra vires. 30. Another principle which needs to be highlighted is that the statue must be construed to make it effective and operative. In that regard Mr. Bhushan learned amicus has maintained that the court should not lean towards a construction which is patently against the intentions of the legislature. While accepting the aforesaid submission we find that the interpretation of section 22(2) or related provisions should not be such as to render the provision nugatory. In that regard we draw support from the observations made by Hon'ble Supreme Court in the case of Tinsukhia Electrical Supply Co. Limited v. State of Assam [1989] 3 SCC 709. The 5 judge constitution bench emphasised that the provision of statute must be so construed a....
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....f Report of Insolvency Law committee which read as under:- 11.5 The Committee also noted that globally, bankruptcy laws prescribe different voting thresholds for decisions of the CoC. In USA, approval of a plan requires 66 percent or more voting share in value and 50 percent or more voting share in number for each class of creditors. The position is similar in Canada, however, such requirement applies to each class of unsecured creditors. In the UK, approval of apian under administration requires a simple majority in value of the creditors present and voting. While such threshold is higher in Singapore as the requirement therein is to obtain 75 percent or more of voting share by value and more than 50 percent voting share in number of creditors present and voting, for approval of the plan. The Committee was of the view a higher threshold with the present and voting requirement, or a lower threshold sans the present and voting requirement, may be adopted. 33. It is evident that the committee noted a global scenario wheredifferent voting share threshold for decision of the committee ofcreditors have been prescribed. The threshold has been either of thetotal voting shares or it is....
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....ts object. The object of the Code is to promote resolution and to discourage liquidation. It is seen that an interpretation which sustains the constitutional validity must be preferred over the one which result in declaring it as unconstitutional. It is not impermissible to add certain words which were not contained in the statute to achieve the object of enactment. In that regard reliance may be placed on the observations made by the Supreme Court in the case of Directorate of Enforcement v. Deepak Mahajan [1994] 3 SSC 440 and Ajaib Singh v. Sir hind Coop. Marketing-cum-Processing Service Society Ltd. and Anr. [1999] 6 SCC 82. Therefore it would be necessary to read section 22 in a manner that it achieves its avowed purpose for promoting resolution over liquidation of every corporate debtors by providing the 'voting share' threshold of the committee of creditors. Therefore the efforts is required to be made to interpret these provisions including section 22(2) in a manner as would advance the object of the resolution rather than the one which would defeat it. Such a course is available in view of the judgement of the Hon'ble Supreme Court rendered in the case of Atlascycle Industr....
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....tors which includes well organised financial institutions like Bank, Financial Companies and non banking financial companies etc. Their representation in the committee of creditor is far smaller in number. Each individual Member has high Voting shares'. On the contrary the class of financial creditor of Real Estate (Commercial 65 Residential) are scattered in thousands all over the country and is wholly unorganised. 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. As the guidance available in various judgment of Hon'ble Supreme Court we may....