TaxTMI 
TaxTMI 
2018 (10) TMI 232
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....re Ltd. was admitted for initiating Corporate Insolvency 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 06.06.20....
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....for voting and timely assistance, there were only 236 financial 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....
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....he rehave been casted in favour 4% of the votes casted have solution. 8. Change of Management of MRG Promoters P Ltd. by removal of present directors and appointment of new directors. VOTING 9. Class of Creditors Total Voted Approving 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 t....
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.... "(a) Allow the present application; and (b) Issue necessary directions on Agenda Item 4 to 9 placed before the Committee of Creditors in the first meeting dated 25.08.2018 as detailed in paragraph X which could not be decided in view of the low voting in view of peculiar circumstances of the case which have resulted in voting by financial creditors representing 52.78% vote share only, and to consider the mandate given by the financial creditors 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....
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....ancial creditor like bank and other financial institutions. In that regard, it has been submitted that the issues may be decided by applying the principle of 'present and voting'. 12. We requested Mr. Sakal Bhushan, learned counsel to assist us to find out correct and legally acceptable canon of construction to interpret Section 22(2) of the Code. Learned Amicus has adopted a different line of reasoning than the counsel for Interim Resolution Professional and submitted 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 ....
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....e various provisions of the IBC. Learned Amicus took us through the long title of the Code which states "An Act to consolidate and amend the laws relating to reorganisation and insolvency resolution....". The preamble of the IBC (Amendment) Ordinance, 2018 which was promulgated to give effect to the Report of the Insolvency Law Committee also states " .................. promoting resolution over liquidation of corporate debtor by lowering the voting threshold of committee of 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), t....
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....written consent from the interim resolution professional in the specified form, it shall communicate its decision to the interim resolution professional, the corporate debtor and the Adjudicating Authority; or (b) to replace the interim resolution professional, it shall file an application before the Adjudicating Authority for the appointment of the proposed resolution professional along with a written consent from the proposed resolution professional in the specified form. 4......................... 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 prof....
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....than sixty six percent of the voting share of the financial creditor' as provided under section 22(2) of the Code. 23. There is another aspect of the matter. The issue concerning the class of creditors namely Real Estate (Commercial & Residential) have engaged the attention of the Law Makers. It is appropriate to mention that in the case of Nikhil Mehta v. AMR Infrastructure decided on 23.01.2017, the Principal Bench has found that home buyers would not answer the description of the financial creditors as it stood at that time. 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 as....
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....r interest are sought to be protected by the authorised representative. 26. There are other provisions which has been inserted by way of amendment in the code which would indicate that Real Estate (Commercial & Residential) are a class of creditor distinct from the well organised financial creditor like Banks, Financial Institutions, Asset Reconstructions Companies and others like non banking financial companies. These institutions are managed by a well organised hierarchical set of mangers and their documentation is also maintained in all respect. 27. It appears to us that clubbing of these categories of financial 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. Roya....
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.... should adopt an interpretation which sustains the provisions rather than leaning to a declaration that the provisions violate Article 14 of the Constitution. In that regard reliance may be placed on para 118 of the judgement of five judge bench in the case of Delhi Transport Corporation v. D.T.C Mazdoor Congress and Ors. 1991 Supp (l)SCC 600 . Placing reliance on the observation made in Sunil Batra v. Delhi Administration [1978] 4 SCC 494, the Supreme Court observed as under: "Where, therefore, in the interpretation of the provisions of an Act, two constructions are possible, one which leads towards constitutionality of the legislation would be preferred 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 ....
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....as a statue are meant to be operative and nothing short of impossibility should allow the court to declare a statute unworkable. It has been emphasised that a statue is designed to be workable andinterpretation thereof by a court should be to secure that object unlesscrucial omission or clear direction makes that end unattainable. Weare therefore not open to the view that the provision of section 22(2) orallied provision of the Code concerning the class of financial creditorsReal Estate (Commercial) 85 Real Estate (Residential) are not workableor there is any compelling reasons for us to say. 32. At this stage the report of the Insolvency Law Committee must be read. We refer to Para 11.5 of 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 administrati....
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....nkruptcy Code (Second Amendment) Act, 2018 enacted with effect from 6-6-2018. In the light of the fact that the Government and Parliament have taken a conscious decisions by discarding the present and voting requirement in the Code, it would not be proper for judicial forum to adopt it by judicial interpretation. Therefore that criteria cannot: be adopted for construction of section 22(2) of the Code. Therefore a workable solution by other interpretation process has to be adopted. 36. We have already opined that the court should lean against an interpretation which makes a statue unconstitutional and unworkable and adopt such an interpretation which makes it constitutional and workable and help in achieving its 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....
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....not be mandatory in the cases of class of creditors where the prospective buyers of Real Estate (Commercial & Residential) alone constitute the CoC. It. has been seen that in such cases the total polled voting share is very small which in the present case is 52.78 percent. Therefore we would say that in case of deadlock the preference can be given to the decisions taken by the highest percentage in the Committee of Creditors and section 22(2) must be regarded as directory in nature in case CoC is comprised 100% of class of creditors Real Estate (Commercial & Residential). Even otherwise we have already opined that the class of creditor like Real Estate (Commercial 85 Residential) are distinct than the other class of creditors 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 on....