TaxTMI 
TaxTMI 
2019 (1) TMI 1506
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....me Buyers are present. 2. Common order pronounced in both CA 223/2018 & CA 266/2018 in the open Court. 3. The Members that constitute this Bench expressed difference of opinion on the point pertaining to procedure for determining voting share for passing Resolutions in the CoC that comprise multiple class of Financial Creditor during the CIRP. 4. Hence, the case is referred to the Hon'ble President for hearing on the aforesaid point by one or more or other Members of the Tribunal under section 419(5) of the Companies Act read with Rule 60 of the NCLT rules. 5. The registry of this Tribunal is directed to address letter to the Registrar NCLT, New Delhi to place this order before the Hon'ble President for referring the matter to one or more of the other members of the Tribunal. 6. IRP or any arrived person is given liberty to file appropriate application at a later stage/appropriate stage seeking exclusion of the period covered by these applications for the purpose of calculation of time limit for completion of CIRP Process if such necessity arises. 7. CA 223/2018 & CA 266/2018 are disposed of by referring matter of Hon'ble President, NCLT, New Delhi under section 4....
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.... home buyers voted in the appointment process of Mr. Kuldeep Verma i.e. the Authorized Representative. The appointment of Mr. Kuldeep Verma as Authorized Representative was confirmed by this Tribunal vide its order dated 05.09.2018. f) It is stated by the IRP that till date, two COC meetings have been convened. The first COC meeting was on 12.09.2018 and the second meeting was on 17.10.2018. 3 . (a) In the first meeting, six voting items were placed by the IRP before the COC, out of which four voting items have been held to be rejected by the COC on account of not having met the minimum voting threshold under the IBC, whereas two voting items were deferred. The table hereunder is illustrative of the result of the First COC meeting :- Voting Item No. Voting Item Voting percentage required Voting percentage achieved Decision 1. Voting on appointment of Mr. Anuj Jain, IRP as RP and ratification of professional fees and IRP insurance. 66% 5.58% Rejected 2. Voting on reimbursement/Ratification of appointment of advisors/consultants and expenses incurred on or by IRP. 51% 45.24% Rejected 3. Voting on delegation of Authority b....
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....ion 5(28) of the I & B Code provides that "voting share" means the share of voting rights of a single Financial Creditor in the COC which is based on the proportion of the financial debt owed to such Financial Creditor in relation to the financial debt owed by the Corporate Debtor. 8. Section 21(8) of the I & B Code provides that all the decisions of the COC shall be taken by a vote of not less than 51% of the voting share of the Financial Creditor subject to other provisions of I & B Code such as sections 12A, 12(2), 22(2), 27(2), 28(3), 30(4) and 33(2) of the 1 & B Code, wherein specific threshold has been mentioned. The following table gives the per cent of voting share of Financial Creditors in the COC in various provisions of I&B Code after amendment which came into force on 06.06.2018, are as hereunder :- S. NO. SUBJECT PERCENTAGE OF VOTE OF COC AFTER AMENDMENT 1. Withdrawal of applications admitted u/s. 7, 9 or 10 (Section 12A) Section 12A Withdrawal of ongoing CIRP applications with 90% approval of COC. 2. Section 12(2) Application for extension of CIRP Period 90 days beyond 180 days 66% voting of COC. 3. Section 22(2) Appointment of I....
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....ng to exercise their votes, even though an overwhelming majority of the members of the COC present and voting have exercised their voting share in favour of the agenda items. 13. It is also stated that in these circumstances the CIRP cannot proceeded as RP cannot be appointed and expenses incurred for the CIRP cannot be ratified and various actions for management of the Corporate Debtor, such as those set out under section 28 of the IBC cannot be approved by the COC. Further, IRP/RP cannot hire professionals, pay support staff and incur expenses to discharge his duties under the Code, including preservation and protection of the assets of the Corporate Debtor. In order to progress in the resolution process, many actions need to be performed by the RP. It is stated that the object of the Code is, for maximisation of value of assets of the Corporate Debtor, to promote entrepreneurship, availability of credit and balance the interests of all the stakeholders 14. The Financial Creditors in their application, referred to the judgment of Hon'ble Supreme Court in Arcelormittal India (P.) Ltd. v. Satish Kumar Gupta [2018] 98 150 SCL 354, which reads as under :- "88. We canno....
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....y those votes that are actually cast and accordingly abstained votes should be disregarded. 17. It is stated by the Nine Home Buyers Associations, the only logical way to calculate the percentage of the votes cast in favour or against is to take into account only those votes that are actually cast and abstained votes be not taken into account for this purpose. 18. It is stated by the home buyers that in response to the representation made before the Authorized Representative, the IRP stated in the meeting the abstention in voting process would be counted as negative vote. 19. It is pointed out that the Hon'ble High Court of Gujarat in the case of Arvind Mills Ltd., In re [2002] 37 SCL 660 has expressly held that abstention from voting cannot be counted as negative voting. The relevant extract of the aforementioned judgment is reproduced herein below: "that a bare attempt to vote by depositing blank ballot containing any writing is not effective and cannot be included in the total count. Only those ballots that express voters preference can be counted. The requirement contemplates only two preferences: one affirmative and the other negative. To adopt any other rule....
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..... 24. It is also contended by the learned counsel appearing for the home buyers that the courts must strongly lean against any construction which lends to reduce statute to futility. On this aspect, Ld. Counsel appearing for the home buyers relied upon the decision in Tinsukhia Electric Supply Co. Ltd. v. State of Assam [1989] 45 Taxman 29 (SC), where it is stated thus: "The courts strongly lean against any construction which tends to reduce a statute to futility. The provision of a statute must be so construed as to make it effective and operative, on the principle "ut res magis valeat quam pereat". It is, no doubt, true that if a statute is absolutely vague and its language wholly intractable and absolutely meaningless, the statute could be declared void for vagueness. This is not injudicial review by testing the law for arbitrariness or unreasonableness under Article 14; but what a court of construction, dealing with the language of a statute, does in order to ascertain from, and accord to, the statute the meaning and purpose which the legislature intended for it." 25. Ld. Counsel for the home buyers also relied upon another decision of Hon'ble Supreme Court in th....
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.... IBC. Section 25A(l) of IBC provides that the authorized representative shall have the right to participate and vote in meetings of the COC, on behalf of the financial creditor he represents, in accordance with the prior voting instructions of such creditors obtained through physical or electronic means. Moreover, the proviso to section 25A provides that if any financial creditor does not give prior instructions through physical or electronic means, the authorized representative shall abstain from voting on behalf of such creditor. Therefore, in the present case the authorized representative cannot participate and vote on behalf of those home buyers who do not give the authorized representative their instructions; and d. The reliance placed upon the judgment passed in Nikhil Mehta & Sons (HUF) & Ors. v. M/s. AMR Infrastructure Limited, bearing (IB)-02(PB)/2017 ("Nikhit Mehta Case") by the home buyers is misplaced. The Hon'ble Tribunal has itself noted in that case that the ratio in that case is applicable only when he entire COC is comprised of same class of creditors i.e. Real Estate (Commercial & Residential); which is not the case in the present facts and circumstanced.....
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....n COC. The concept of present and voting is neither expressly nor impliedly stated in any of the provisions of the I & B Code that contemplated a particular per cent of voting share of Financial Creditors is required for passing the resolutions. Therefore, it is necessary to examine, whether the concept of present and voting can be introduced by this Authority by way of purposive of interpretation. 31. On this aspect, Hon'ble National Company Law Tribunal, Principal Bench, New Delhi in Nikhil Mehta & Sons (HUF)'s case (supra) in para 35 of the said judgment, it is held as follows:- "35. Another aspect which emerges is that the principle of voting share threshold on the basis of present and voting has . been discarded. The recommendation of the committee has not been promulgated by Insolvency Bankruptcy Board (Amendment) Ordinance which is now known as Insolvency Bankruptcy 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 interpretati....
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.... authorised representative of the creditor of the respective class. If such a distinction is not implied then there is inherent danger of sections 12(2), 12A, 22(2), 27(2), 28(3), 30(4), 33(2) & 21(8) becoming unworkable and unconstitutional. It may thus be declared ultra vires. As the guidance available in various judgment of Hon'ble Supreme Court we may lean towards a construction which sustains the statute and we must also adopt an interpretation which makes the statute workable by advancing its object. Therefore we are of the view that 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." 34. On this aspect, there is a decision of Hon'ble NCLAT in Company Appeal (AT) (Insolvency) No. 45 of 2018 with Company Appeal (AT) (Insolvency) No. 23 of 2018 decided on 06.09.2018. In that decision, the Hon'ble NCLAT by referrin....
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....are has to advance the said object, without taking into consideration whether the interest of any particular stakeholders is going to be affected or not. Therefore, the aforementioned two objects must be taken as a whole and then interpretation has to be made in respect of the threshold limits of per cent of voting share, prescribed under sections 12(2), 12A, 22(2), 27(2), 28(3), 30(4), 33(2) & 21(8) of the Code. 39. On this aspect, learned counsel appearing for the home buyers cited following decisions:- a) In Sunil Batra's case (supra) the Hon'ble Supreme Court has stated that: "It is well settled that if certain provisions of law construed in one way will be consistent with the Constitution, and if another interpretation would render them 'unconstitutional', the Court would lean in favour of the former construction." b) Similarly, in the case of Tinsukhia Electric Supply Co. Ltd. (supra) it was stated thus: "The courts strongly lean against any construction which tends to reduce a statute to futility. The provision of a statute must be so construed as to make it effective and operative, on the principle "ut res magis valeat quant pere....
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....buyers as a class constituted 58.1% of voting share. The IRP so far conducted two CoC meetings, the first meeting on 07.09.2018 and the second meeting on 17.10.2018. The resolutions passed/rejected in the said meetings have been displayed in para 3(a) and 3(b) of this order. A perusal of those tables goes to show that the majority of the resolution have not been passed because the percentage of total votes poled are not even meeting the required threshold per cent of voting share for that particular resolution. 42. The Hon'ble NCLT, Principal Bench in M/s. AMR Infrastructure Limited held " that, in case where the COC consist of only one class of creditors namely 'Real Estate', then the majority vote in favour of Resolution has to be taken into consideration irrespective of threshold of 66% provided in section 22(2) of the Code. In the instant case there are multiple class of Financial Creditors in COC. But more than 50% of the total voting share constitute a class of creditors namely 'Home Buyers/Allottees of Flats & Plots of Corporate Debtor. In the process of voting, each home buyer has got a vote, but the value of vote is based on value of verified claim due to him. Due to no....
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....epresentative under Regulation 16A of the Insolvency & Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations. 46. Further, the class of Financial Creditor namely 'home buyers' are scattered in thousands all over India and abroad and are largely unorganized. This situation of non-passing of resolutions is only on account of less number of home buyers exercising their vote in spite of following the electronic voting system provided under Regulation 25(5) of the Regulations and inspite of keeping it open for more than 24 hours after the polling. The various threshold limits of voting percentage for passing various resolutions as laid down in various sections of the Code is to be followed even in a case where COC consist of Real Estate class of creditors 50% or more, and when the voting of Home Buyers is less in number and when there is dead lock no resolution would be passed and ultimately the CIRP would end invariably in liquidation, which is not at all the main object of I & B Code. The situation that prevailed in the case of Corporate Debtor in this case is that no resolution which would help to revive the company would be passed because lar....
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.... for important & critical resolutions and 90% for withdrawal of application. Bringing down threshold to mere majority from 66% of the total votes prescribed under the code will dilute the participation of Home Buyers in decision making process on important & critical resolutions. 49. The voting percentage of Home Buyers, Banks and Fixed Deposit Holders is 58.1%, 41.8% and 0.1% respectively. Although Home Buyers constitute majority voting share in COC yet their share is not reflecting in the voting pattern and is significantly depressed due to non-participation of large number of Home Buyers in the voting and thereby their majority voting share of 58.1% is practically reduced to a minority voting share of 17% only in COC. This defeats the object of including Home Buyers as a class in financial creditors by way of amendment and providing them place in COC. In spite of majority voting share of 58.1% in COC, an anomalous situation is created whereby say of Home Buyers gets reduced to only 17% while Banks with 41.8% voting share end up with the largest say in COC. 50. The very object of including the Home Buyers as a class of Financial Creditor is to protect their interest. In a s....
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....d to Home Buyers who do not cast their votes, the same will not be correct reflection of their will. As already stated, Home Buyers is a homogenous class with a common cause, common interest and common goals and their votes will only reflect the common interests. Moreover, no detriment is caused to other lenders, as their total voting share is determined in terms of their total investment and does not impinge on voting share of other lenders. On the contrary if their voting share is reduced due to absentees, it would be unfair and detrimental to Home Buyers. Further, it is expressed that it may also lead to assigning abnormally high weightagc to the class, even if only one Home Buyer votes. Although it's a hypothetical example, but it can be taken care by laying down the minimum number of Home Buyers required to vote, to be taken as a representative sample of the class as a whole. In the instant case, total Home Buyers are about 24,000 and nearly 10,000 have participated in voting. Although it constitutes 17% of voting share out of 58.1%, yet 10,000 Home Buyers out of 24,000 can be considered a representative sample. Therefore, it is proposed that the Home Buyers that voted must be....
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....cal, Saroj Rajware :- "In order to protect the rights of the Home Buyers, I am of the view that the Home Buyers must be treated as a separate class with en-block voting rights. The decision taken by the number of Home Buyers that voted, shall be treated as the decision of the class of Home Buyers, since they represent the class and their interests are common. Once Home Buyers are given proportional representation in their class, it would also not be necessary to lower the threshold limits laid down under the Code. Therefore, I am of the considered view that the votes cast by the Home Buyers in favour of the resolution or against the resolution shall be taken to represent the views of the class as a whole and their voting share shall be proportionately increased, taking the total voting share into consideration. The counsel for Banks argued that if votes are assigned to Home Buyers who do not cast their votes, the same will not be correct reflection of their will. As already stated, Home Buyers is a homogenous class with a common cause, common interest and common goals and their votes will only reflect the common interests. Moreover, no detriment is caused....