AI Drafter - (New and Powerful) 
Generate professional replies, appeals, opinions to Show Cause Notices, assessment orders, audit objections, and other legal communications using TaxTMI's AI Drafter. 
TaxTMI 
TaxTMI 
2019 (2) TMI 1043
X X X X Extracts X X X X
X X X X Extracts X X X X
....and Innoventive Industries Ltd. (for short "IIL") having its registered office at Pune, Maharashtra. 4. The NCLAT affirmed the order passed by the National Company Law Tribunal, Mumbai Bench (for short "NCLT Mumbai") recording rejection of the resolution plan concerning IIL and directing initiation of liquidation process under Chapter III of Part II of the I&B Code. As regards KS&PIPL, the NCLAT reversed the decision of the National Company Law Tribunal, Hyderabad (for short "NCLT Hyderabad") which had approved its resolution plan and instead remanded the proceedings to NCLT Hyderabad for initiation of liquidation process in terms of Section 33 and 34 of the I&B Code. 5. The NCLAT held that as, in both the cases, the resolution plan did not garner support of not less than 75% of voting share of the financial creditors constituting the Committee of Creditors (for short "CoC") the same stood rejected and thereby warranted initiation of liquidation process of the concerned corporate debtor, namely, KS&PIPL and IIL. 6. For considering the grounds of challenge in the respective appeals, we deem it appropriate to advert to the relevant facts concerning the respective corporate d....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ects discussed and resolved in this meeting. As the statutory period of 180 days for completion of CIRP was to expire, an application was filed before the NCLT Hyderabad for extending the time by a further 90 days. Thus, the NCLT Hyderabad, on 27 th July, 2017, extended further time by 90 days starting from 9 th August, 2017. The sixth meeting of the CoC was held on 24 th August, 2017, when the corporate debtor submitted an expression of interest from AREA Group of Companies, Chandigarh to infuse Rs. 150 Crore in the form of debentures, subject to getting a firm approval from the lenders. The said proposal was circulated during the meeting which concluded with the resolution that the same be placed along with the final report of SBI Capital Markets Limited, which was still awaited. The seventh meeting of the CoC was held on 26th September, 2017 in which various options were deliberated but the discussion remained inconclusive. In the eighth CoC meeting, held on 16 th October, 2017, it was agreed that the resolution plan submitted by the corporate debtor should provide for monitoring and supervision by the resolution professional, in case the plan was approved by the CoC. The Indian....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n plan was only 66.67% and the voting share of dissenting lender Banks was 26.97%. Maharashtra Bank, having 6.36% voting share, had not either approved, rejected or abstained from voting but had conveyed that they remained open to consider the resolution plan. The fact remains that the proposed resolution plan did not garner approval of not less than 75% of voting share of the financial creditors until the resolution professional (IRP) filed an affidavit before the adjudicating authority (NCLT Hyderabad) on 3rd November, 2017, submitting the outcome of the 9 th CoC meeting. The Managing Director of the corporate debtor (KS&PIPL) appeared before the adjudicating authority (NCLT) on 6th November, 2017, and also filed a memo on 17 th November, 2017, inter alia submitting that for the financial creditor who chose not to participate in the voting, the votes and the majority be counted without their vote. In that eventuality, the percentage of financial creditors who chose to participate and who approved of the resolution plan would work out to 78.63% and therefore, it can be assumed that the resolution plan has been approved by the CoC. The NCLT Hyderabad vide judgment dated 27th Novemb....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... of 2018, filed by them to challenge the judgment passed by the NCLT Mumbai dated 23 rd November, 2017/8th December, 2017, and for directing the Union of India to revive the corporate debtor (IIL) and save it from liquidation by dispensing with the 8% shortfall for touching the criteria of 75% of consent of CoC for the approval of revival as per the provisions of the I&B Code. The High Court rejected the writ petition filed by the workers' union on the ground that they had an alternative and efficacious remedy against the decision of the Tribunal. In other words, the Special Leave Petition primarily questions the decision of rejection of the proposed resolution plan in respect of the corporate debtor (IIL). 9. As regards the corporate debtor (IIL), the relevant facts are as follows. The said corporate debtor had suffered losses. As a result, it had proposed to its lender Bankers for Corporate Debt Restructuring (for short "CDR"). The company was referred to CDR in September, 2013 by 19 banking entities and it invited a consortium, led by Central Bank of India. The lenders' forum approved the restructuring plan of the company on 24th June, 2014. ICICI Bank filed an Insolvency and....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... praying that the dissenting financial creditors be directed to disclose on oath reasons/basis for, or the decision making process involved in, voting against the resolution plan and a declaration that the dissenting financial creditors voted with malicious intention of liquidation and hence, their votes ought to be ignored. The workers' union of the corporate debtor (IIL) had filed an interim application, opposing liquidation of the company. The resolution applicant had also filed an application to allow it to submit a revised resolution plan and to invite a fresh vote thereon albeit after the time earlier envisaged for obtaining shareholders approval. According to the appellants in the second set of appeals, NCLT did not call for the response of the opposite parties on the concerned applications and instead proceeded to pass the impugned order rejecting the applications and directing initiation of liquidation proceeding against the corporate debtor. The appellants in the leading appeal concerning the corporate debtor (IIL) filed an appeal before the NCLAT against the decision of the NCLT, Mumbai. This appeal was heard along with the appeals concerning another corporate debtor (KS....
X X X X Extracts X X X X
X X X X Extracts X X X X
....of the proposal, as the case may be. Additionally, the requirement of percentage of votes of the financial creditors stood reduced to 66% of voting share which, in the present case, has been fulfilled on account of the approval given by 55.73% in the meeting convened on 27th October, 2017, and followed by in-principle approval conveyed via email on 30th October, 2017, by Oriental Bank of Commerce, having 10.94% voting power. In effect, this argument proceeds on the assumption that the amendments to the Code brought into force w.e.f. 23 rd November, 2017 and in particular on 6th June, 2018, would have retroactive effect, as is clear from the legislative intent behind the said amendments. The said amendments are made applicable from the inception and to pending proceedings also because it is to substitute the original provision as was applicable on the date of the resolution dated 27th October, 2017, and filing of affidavit by IRP before the adjudicating authority. To buttress this argument, reliance has been placed on the exposition in Gottumukkala Venkata Krishamraju Vs. Union of India (2018) SCC Online SC 1386- Paragraphs 13-16, Government of India Vs. India Tobacco Association (2....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ency of the appeal before it. It is also contended that the adjudicating authority (NCLT) as well as the appellate authority (NCLAT), while approving or rejecting the resolution plan, is duty bound to exercise a judicious mind and be alive to the facts and circumstances of the specific case before it and the socio- economic benefit considering the favourable opinion noted by the resolution professional in his affidavit, that there was every possibility of reviving the corporate debtor. Even as per the report submitted by M/s. Atlas Financial Research & Consulting Private Limited regarding a thorough Techno Economic Viability study conducted in respect of the corporate debtor (KS&PIPL), it has been noted that the company was technically feasible and economically viable. The corporate debtor was facing a financial crisis due to abrupt and unilateral stoppage of operations in the working capital loan account and the proposed resolution plan fulfilled all the eligibility criteria for its approval under the provisions of the I&B Code. Furthermore, the dissenting financial creditors having failed to offer any reason whatsoever for rejecting the resolution proposal, it must follow that th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....y for exploring the possibility of revival of the corporate debtor and maximisation of the value of assets. In the present case, contends learned counsel, the only plea taken by the dissenting financial creditors before the adjudicating authority (NCLT), was that they had taken a commercial decision and it was not open to judicial scrutiny. Even if it is a commercial decision, contends learned counsel, it must fulfill the test of a reasonable and fair approach to be supported by tangible reasons. In the absence of reasons, the adjudicating authority (NCLT) must exercise its jurisdiction to ascertain whether the exercise of power by the CoC is reasonable and in conformity with the purpose of the Code. If the resolution plan is ex facie viable and yet the dissenting financial creditors reject the same, such exercise of power would be subversive of the policy of the Code, requiring intervention by the adjudicating authority (NCLT). Whereas, such a case would imply a duty on the CoC to exercise its power to approve the plan. To counter the defence of the dissenting financial creditors regarding a commercial decision, reliance was placed on Padfield and Others Vs. Minister of Agricultur....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... larger public interests. The intention of the Parliament was to cure the mischief that the high threshold was causing; and by reducing it, Parliament intended to encourage revival of the corporate debtor and maximisation of the value of assets and to discourage liquidation resulting in closure of the functioning company on which many stakeholders depended, such as its workers. With regard to the objection to the locus of the appellant being the former Chairman and Managing Director of the corporate debtor, it is contended that the same is raised for the first time, and in any case, cannot be countenanced in view of the express provision contained in Section 61 of the I&B Code and moreso because the appellant had initiated proceedings by filing an application before the adjudicating authority (NCLT) and the appellant, being the shareholder, had reason to insist for revival of the corporate debtor instead of its liquidation. As regards the objection about the eligibility of the appellant as a person acting jointly or in concert with the corporate debtor in terms of Section 29A of the I&B Code, it is contended that even this objection was being taken for the first time. Notably, Sect....
X X X X Extracts X X X X
X X X X Extracts X X X X
....equirement specified in Section 30(4) of the I&B Code is mandatory. They submit that the I&B Code has been enacted after the experience of the earlier dispensations. There has been paradigm shift in adopting the new regime regarding the timelines to be observed by all concerned at every stage as predicated in the Code. Be it for the resolution process or liquidation process. Both these processes are intended to be disposed of speedily and in a time-bound manner. The initial time limit provided to revive the company is 180 days from the date of admission of the petition and extendable by 90 days. The outer limit for resolution process has been specified as 270 days and if the resolution plan is not approved by the CoC with requisite number of votes of the financial creditors (not less than of 75%), then there is no other option but to order liquidation. That is the inevitable consequence of failure to approve the resolution plan within the specified time. The adjudicating authority (NCLT) would have no other option. Further, on presentation of the rejected resolution plan, it is not open to the adjudicating authority (NCLT) to enquire into the justness of the reason or the commercia....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ing authority (NCLT) be allowed to sit over the same as a court of appeal. The decision of the dissenting financial creditors reckons various aspects including the confidence about the capacity of the resolution applicant to translate the projected plan into reality as per the timelines specified and the feasibility and viability of the proposal and revival of the company in question. He took us through the relevant provisions including amended provisions and contended that the purpose and intent underlying the amendment was to give prospective effect thereto. He submitted that the appeal filed by the former Chairman and Managing Director of the corporate debtor (IIL) was not maintainable also because the said appellant has no locus. He submitted that the appellant was acting in concert with the resolution applicant and for which the appellant must be called upon to first deposit 100% of the dues. Our attention is invited to the recent decision in Arcelormittal India Private Limited Vs. Satish Kumar Gupta and Others18. He submits that the Court has noticed the necessity of observing timelines by all concerned - be it at the stage of resolution process or liquidation process - in te....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nting financial creditors, would submit that the appellant was disqualified to appeal and that his appeal before NCLAT was limited to the observation regarding the personal guarantee as noted by the NCLT. The fact remains that the resolution plan put to vote did not garner support of the requisite percentage of financial creditors to the extent of not less than 75% of the voting share. The provisions as couched in the I&B Code do not permit computation of the voting share percentage by excluding the votes of financial creditors who had abstained. Whereas, there is express provision to the contrary, making it amply clear that the votes of the financial creditors who had abstained from voting must be computed along with the votes rejecting the resolution plan, as being dissenting financial creditors. Any other interpretation would result in re-writing Section 30(4) and the regulations framed under the I&B Code, if not doing violence to the legislative intent. She has placed reliance on the decisions of S.L. Srinivasa Jute Twine Mills (P) Ltd. Vs. Union of India and Another (2006) 2 SCC 740. Paragraphs 13-19 and Rajeev Chaudhary Vs. State (NCT) of Delhi (2001) 5 SCC 34 Paragraphs. 3 a....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... governing the process of approval or rejection of resolution plan by the CoC. The CoC is called upon to consider the resolution plan under Section 30(4) of the I&B Code after it is verified and vetted by the resolution professional as being compliant with all the statutory requirements specified in Section 30(2). 20. The CoC is constituted as per Section 21 of the I&B Code, which consists of financial creditors. The term 'financial creditor' has been defined in Section 5(7) of the I&B Code to mean any person to whom a financial debt is owed and includes a person to whom such debt has been legally assigned or transferred to. Be it noted that the process of insolvency resolution and liquidation concerning corporate debtors has been codified in Part II of the I&B Code, comprising of seven Chapters. Chapter I predicates that Part II shall apply in matters relating to the insolvency and liquidation of corporate debtor where the minimum amount of default is Rs. 1,00,000/-. Section 5 in Chapter I is a dictionary clause specific to Part II of the Code. Chapter II deals with the gamut of procedure to be followed for the corporate insolvency resolution process. For dealing with the issue....
X X X X Extracts X X X X
X X X X Extracts X X X X
....bmission of resolution plan.- (1) xxx xxx xxx (2) The resolution professional shall examine each resolution plan received by him to confirm that each resolution plan- (a) provides for the payment of insolvency resolution process costs in a manner specified by the Board in priority to the repayment of other debts of the corporate debtor; (b) provides for the repayment of the debts of operational creditors in such manner as may be specified by the Board which shall not be less than the amount to be paid to the operational creditors in the event of a liquidation of the corporate debtor under section 53; (c) provides for the management of the affairs of the Corporate debtor after approval of the resolution plan; (d) the implementation and supervision of the resolution plan; (e) does not contravene any of the provisions of the law for the time being in force; (f) conforms to such other requirements as may be specified by the Board. xxx xxx xxx" 22. In Innoventive Industries Limited (supra), the Court, after analysing the historical background in which the Code was enacted, opined that one of the most important ob....
X X X X Extracts X X X X
X X X X Extracts X X X X
....aragraphs 73 and 74, which read thus: "73. The time limit for completion of the insolvency resolution process is laid down in Section 12. A period of 180 days from the date of admission of the application is given by Section 12(1). This is extendable by a maximum period of 90 days only if the Committee of Creditors, by a vote of 66%, votes to extend the said period, and only if the Adjudicating Authority is satisfied that such process cannot be completed within 180 days. The authority may then, by order, extend the duration of such process by a maximum period of 90 days (see Sections 12(2) and 12(3)). What is also of importance is the proviso to Section 12(3) which states that any extension of the period Under Section 12 cannot be granted more than once. This has to be read with the third proviso to Section 30(4), which states that the maximum period of 30 days mentioned in the second proviso is allowable as the only exception to the extension of the aforesaid period not being granted more than once. 74. What is important to note is that a consequence is provided, in the event that the said period ends either without receipt of a resolution plan or after rejection....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he resolution plan, intimates the Adjudicating Authority of the decision of the Committee of Creditors to liquidate the corporate debtor; or (3) where the resolution plan approved by the Adjudicating Authority is contravened by the concerned corporate debtor. Any person other than the corporate debtor whose interests are prejudicially affected by such contravention may apply to the Adjudicating Authority, who may then pass a liquidation order on such application." (emphasis supplied) 24. Notably, the resolution plan concerning both the corporate debtors, namely KS&PIPL and IIL was considered by the concerned CoC in October 2017, and was approved by less than 75% of voting share of the financial creditors. The inevitable consequences thereof are to treat the proposed resolution plan as disapproved or deemed to be rejected by the dissenting financial creditors. The expression 'dissenting financial creditors, is defined in Regulation 2(1)(f) of The Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016, to mean the financial creditors who voted against the resolution plan approved by the Committee. This definition came to be....
X X X X Extracts X X X X
X X X X Extracts X X X X
....olution plan. Any other interpretation would result in rewriting of the provision and doing violence to the legislative intent. 27. It was then contended that the amendment vide Insolvency and Bankruptcy Code Amendment Act, 2018 (Act No.8 of 2018, dated 18th January, 2018) w.e.f. 23rd November, 2017 was to substitute the amended provision, which means that the amended provision stood incorporated as Section 30(4) from the commencement of I&B Code. This argument will be dealt with a little later while considering the effect of the amended provisions. For the present, we are adverting to the provisions in the I&B Code and the regulations framed there under, as were in force in October 2017, when the CoC of the concerned corporate debtor was called upon to consider the proposed resolution plan. 28. We may now take note of the provisions in the 2016 regulations framed under the I&B Code. Chapter-VI of the regulations deals with general meetings of the committee. Chapter-VII with matters relating to voting by the committee. Chapter-VIII with the conduct of corporate insolvency resolution process and Chapter-X with the resolution plan. As the issue under consideration is about the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....o the Adjudicating Authority with the certification that: (a) the contents of the resolution plan meet all the requirements of the Code and the Regulations; and (b) the resolution plan has been approved by the committee. (5) The resolution professional shall forthwith send a copy of the order of the Adjudicating Authority approving or rejecting a resolution plan to the participants and the resolution applicant. (6) A provision in a resolution plan which would otherwise require the consent of the members or partners of the corporate debtor, as the case may be, under the terms of the constitutional documents of the corporate debtor, shareholders' agreement, joint venture agreement or other document of a similar nature, shall take effect notwithstanding that such consent has not been obtained. (7) No proceedings shall be initiated against the interim resolution professional or the resolution professional, as the case may be, for any actions of the corporate debtor, prior to the insolvency commencement date. (8) A person in charge of the management or control of the business and operations of the corporate debtor after a resolution ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tes must fulfill the threshold percent of voting share of the financial creditors. Keeping this clear distinction in mind, it must follow that the resolution plan concerning the respective corporate debtors, namely, KS&PIPL and IIL, is deemed to have been rejected as it had failed to muster the approval of requisite threshold votes, of not less than 75% of voting share of the financial creditors. It is not possible to countenance any other construction or interpretation, which may run contrary to what has been noted herein before. 30. Thus understood, no fault can be found with the NCLAT for having recorded the fact that the proposed resolution plan in respect of both the corporate debtors was approved by vote of "less than 75%" of voting share of the financial creditors or deemed to have been rejected. In that event, the inevitable corollary is to initiate liquidation process relating to the concerned corporate debtor, as per Section 33 of the I&B Code. 31. Indeed, in terms of Section 31 of the I&B Code, the adjudicating authority (NCLT) is expected to deal with two situations. The first is when it does not receive a resolution plan under sub-section (6) of Section 30 or whe....
X X X X Extracts X X X X
X X X X Extracts X X X X
....of clause (b) of sub-section (1). (3) Where the resolution plan approved by the Adjudicating Authority is contravened by the concerned corporate debtor, any person other than the corporate debtor, whose interests are prejudicially affected by such contravention, may make an application to the Adjudicating Authority for a liquidation order as referred to in sub-clauses (i), (ii) and (iii) of clause (b) of sub-section (1). (4) On receipt of an application under sub-section (3), if the Adjudicating Authority determines that the corporate debtor has contravened the provisions of the resolution plan, it shall pass a liquidation order as referred to in sub-clauses (i), (ii) and (iii) of clause (b) of sub-section (1). (5) Subject to section 52, when a liquidation order has been passed, no suit or other legal proceeding shall be instituted by or against the corporate debtor: Provided that a suit or other legal proceeding may be instituted by the liquidator, on behalf of the corporate debtor, with the prior approval of the Adjudicating Authority. (6) The provisions of sub-section (5) shall not apply to legal proceedings in relat....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the adjudicating authority. That is made non- justiciable. 34. In the report of the Bankruptcy Law Reforms Committee of November 2015, primacy has been given to the CoC to evaluate the various possibilities and make a decision. It has been observed thus: "The key economic question in the bankruptcy process When a firm (referred to as the corporate debtor in the draft law) defaults, the question arises about what is to be done. Many possibilities can be envisioned. One possibility is to take the firm into liquidation. Another possibility is to negotiate a debt restructuring, where the creditors accept a reduction of debt on an NPV basis, and hope that the negotiated value exceeds the liquidation value. Another possibility is to sell the firm as a going concern and use the proceeds to pay creditors. Many hybrid structures of these broad categories can be envisioned. The Committee believes that there is only one correct forum for evaluating such possibilities, and making a decision: a creditors committee, where all financial creditors have votes in proportion to the magnitude of debt that they hold. In the past, laws in India have brought arms of the Government (....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... that all key stakeholders will participate to collectively assess viability. The law must ensure that all creditors who have the capability and the willingness to restructure their liabilities must be part of the negotiation process. The liabilities of all creditors who are not part of the negotiation process must also be met in any negotiated solution. V. The Code will respect the rights of all creditors equally. (10) The law must be impartial to the type of creditor in counting their weight in the vote on the final solution in resolving insolvency. VI. The Code must ensure that, when the negotiations fail to establish viability, the outcome of bankruptcy must be binding. (11) The law must order the liquidation of an enterprise which has been found unviable. This outcome of the negotiations should be protected against all appeals other than for very exceptional cases. ..." (emphasis supplied) 35. Whereas, the discretion of the adjudicating authority (NCLT) is circumscribed by Section 31 limited to scrutiny of the resolution plan "as approved" by the requisite percent of voting share of financial creditors. Even in that enquiry, the grounds o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....anding anything to the contrary contained under the Companies Act, 2013 (18 of 2013), any person aggrieved by the order of the Adjudicating Authority under this part may prefer an appeal to the National Company Law Appellate Tribunal. (2) xxx xxx xxx (3) An appeal against an order approving a resolution plan under section 31 may be filed on the following grounds, namely:- (i) the approved resolution plan is in contravention of the provisions of any law for the time being in force; (ii) there has been material irregularity in exercise of the powers by the resolution professional during the corporate insolvency resolution period; (iii) the debts owed to operational creditors of the corporate debtor have not been provided for in the resolution plan in the manner specified by the Board; (iv) the insolvency resolution process costs have not been provided for repayment in priority to all other debts; or (v) the resolution plan does not comply with any other criteria specified by the Board. xxx xxx xxx." 37. On a bare reading of the provisions of the I&B Code, it would appear that the remedy of appeal under Section 61(1) is....
X X X X Extracts X X X X
X X X X Extracts X X X X
....bed authorities (NCLT/NCLAT) have been endowed with limited jurisdiction as specified in the I&B Code and not to act as a court of equity or exercise plenary powers. 39. In our view, neither the adjudicating authority (NCLT) nor the appellate authority (NCLAT) has been endowed with the jurisdiction to reverse the commercial wisdom of the dissenting financial creditors and that too on the specious ground that it is only an opinion of the minority financial creditors. The fact that substantial or majority percent of financial creditors have accorded approval to the resolution plan would be of no avail, unless the approval is by a vote of not less than 75% (after amendment of 2018 w.e.f. 06.06.2018, 66%) of voting share of the financial creditors. To put it differently, the action of liquidation process postulated in Chapter-III of the I&B Code, is avoidable, only if approval of the resolution plan is by a vote of not less than 75% (as in October, 2017) of voting share of the financial creditors. Conversely, the legislative intent is to uphold the opinion or hypothesis of the minority dissenting financial creditors. That must prevail, if it is not less than the specified percent (2....
X X X X Extracts X X X X
X X X X Extracts X X X X
....The fact that the concerned corporate debtor was still able to carry on its business activities does not obligate the financial creditors to postpone the recovery of the debt due or to prolong their losses indefinitely. Be that as it may, the scope of enquiry and the grounds on which the decision of "approval" of the resolution plan by the CoC can be interfered with by the adjudicating authority (NCLT), has been set out in Section 31(1) read with Section 30(2) and by the appellate tribunal (NCLAT) under Section 32 read with Section 61(3) of the I&B Code. No corresponding provision has been envisaged by the legislature to empower the resolution professional, the adjudicating authority (NCLT) or for that matter the appellate authority (NCLAT), to reverse the "commercial decision" of the CoC muchless of the dissenting financial creditors for not supporting the proposed resolution plan. Whereas, from the legislative history there is contra indication that the commercial or business decisions of the financial creditors are not open to any judicial review by the adjudicating authority or the appellate authority. 43. It was argued that the dissenting financial creditors have not assign....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ested in the adjudicating authority under Section 31 of the I&B Code dealing with approval of the resolution plan. 45. To put it differently, since none of the grounds available under Section 30(2) or Section 61(3) of the I&B Code are attracted in the fact situation of the present case, the Adjudicating Authority (NCLT) as well as the Appellate Authority (NCLAT) had no other option but to record that the proposed resolution plan concerning the respective corporate debtor (KS&PIPL and IIL) stood rejected. Further, as no alternative resolution plan was approved by the requisite percent of voting share of the financial creditors before the expiry of the statutory period of 270 days, the inevitable sequel is to pass an order directing initiation of liquidation process against the concerned corporate debtor in the manner specified in Chapter III of the I&B Code. 46. Realising this position, the resolution applicant and the stakeholders supporting the proposed resolution plan of the concerned corporate debtors, would contend that the NCLAT has failed to give effect to the amended provisions which came into effect from 23rd day of November, 2017 and the second amendment from 6th Jun....
X X X X Extracts X X X X
X X X X Extracts X X X X
....does not alter the requirement regarding approval of a resolution plan, by a vote of not less than 75% of voting share of the financial creditors. The amendment is only to declare that the financial creditors ought to consider the feasibility and viability and such other requirements as may be specified by the Board, while exercising their option on the resolution plan - to approve or not to approve the same. It is rudimentary that the financial creditors (in most cases are national Bankers), who are called upon to consider the proposed resolution plan would take into account all the relevant materials, including the feasibility and viability and such other requirements as may be specified by the Board. Additionally, the financial creditors are also required to bear in mind that the legislative intent is to bring about resolution and revival of the corporate debtors so as to benefit not only the corporate debtor but also other stake- holders in equal measure. 48. Suffice it to observe that the amended provision merely restates as to what the financial creditors are expected to bear in mind whilst expressing their choice during consideration of the proposal for approval of a reso....
X X X X Extracts X X X X
X X X X Extracts X X X X
..... In our opinion, by this amendment, a new norm and qualifying standard for approval of a resolution plan has been introduced. That cannot be treated as a declaratory/clarificatory or stricto sensu procedural matter as such. Whereas, the stated Amendment Act makes it expressly clear that it shall be deemed to have come into force on the 6 th day of June, 2018. Thus, by mere use of expression "substituted" in Section 23(iii) (a) of the Amendment Act of 2018, it would not make the provision retrospective in operation or having retroactive effect. This interpretation is reinforced by the fact that there is no indication in the Amendment Act of 2018 that the legislature intended to undo and/or govern the decisions already taken by the CoC of the concerned corporate debtors prior to 6-06-2018. 52. Our attention was invited to the report of the Insolvency Law Committee of March, 2018. Even the said report does not mention about introducing the amendment to Section 30(4), regarding the threshold requirement with retrospective or retroactive effect. Indeed, the report has noted about the necessity to alter the low threshold level of 25% of voting share for rejection of the resolution pl....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nd (ii) unsecured creditors representing 25 percent in value of the amount of debt owed to them. Further, in case of voluntary winding up, section 311 of the CA 2013 provided for replacement of the company liquidator by approval of 75 percent of creditors or 75 percent of members of the company.79 (c) The Joint Lender's Forum ("JLF") framework formulated by the RBI (which has now been replaced) to enable creditors to identify and deal with stressed assets at an early stage prescribed a voting threshold of 60 percent (reduced from 75 percent) of creditors by value and 50 percent (reduced from 60 percent) of creditors by number in the JLF, for proceeding with the restructuring of the account.80 (d) Section 13(9) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 provided that in the case of financing of a financial asset by more than one secured creditors or joint financing of a financial asset by secured creditors, no secured creditor would be entitled to exercise any or all of the rights conferred on her under the relevant law (such as taking possession of the secured asset or takeover the management of the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t the commercial wisdom of the CoC. As aforesaid, the amendment of 2018 cannot be considered as clarificatory but it envisages a new norm of threshold for considering the decision of the CoC as approval of the resolution plan. The Amendment Act of 2018 having come into force w.e.f. 6 th day of June, 2018, therefore, will have prospective application and apply only to the decisions of CoC taken on or after that date concerning the approval of resolution plan. 54. Reliance was placed by the resolution applicants and the stakeholders supporting the resolution plan of the concerned corporate debtors, on the decisions of this Court in Gottumukkala Venkata Krishamraju (supra), B.K. Educational Services Private Ltd. (supra), and State Bank of India (supra). In the case of Gottumukkala (supra), this Court, after adverting to the dictum in Government of India Vs. India Tobacco Association (supra), and Zile Singh vs. State of Haryana (supra), opined in paragraph 15 as under: "15. Ordinarily wherever the word 'substitute' or 'substitution' is used by the legislature, it has the effect of deleting the old provision and make the new provision operative. The process of substitution c....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... buyer. This Court, time and again, has observed that any substantive law shall operate prospectively unless retrospective operation is clearly made out in the language of the statute. Only a procedural or declaratory law operates retrospectively as there is no vested right in procedure. (emphasis supplied) It may be useful to notice the exposition in CIT Vs. Vatika Township (P) Ltd. (2015) 1 SCC 1 In paragraph 29, the Court observed thus: "29. The obvious basis of the principle against retrospectivity is the principle of "fairness", which must be the basis of every legal rule as was observed in L'Office Cherifien des Phosphates v. Yamashita-Shinnihon Steamship Co. Ltd.7 Thus, legislations which modified accrued rights or which impose obligations or impose new duties or attach a new disability have to be treated as prospective unless the legislative intent is clearly to give the enactment a retrospective effect; unless the legislation is for purpose of supplying an obvious omission in a former legislation or to explain a former legislation. We need not note the cornucopia of case law available on the subject because aforesaid legal position clearly emerges from....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Insolvency Law Committee of March, 2018 and other provisions of the Code and other enactments, opined that Section 238-A was clarificatory in nature and being a procedural law, came to hold that it had retrospective effect. The Court held that taking any other view would result in an incongruous situation as the provisions of the Limitation Act would apply in some set of cases to be decided by the same Tribunal and not in other set of cases. Besides, the Court adverted to the principle that right to sue accrues on the date when default occurs and if the default occurred even three years prior to the date of filing of the application, the same cannot be treated as "debt that is due and payable" or "debt" due. 57. In the case of State Bank of India (supra), the Court considered the question as to whether Section 14 of the I&B Code, which provides for moratorium for the period mentioned in the Code, insolvency would apply to a personal guarantor of a corporate debtor. Even in this judgment, the Court after adverting to all the relevant materials and the governing provisions in the Code, concluded that the amended Section 14 was only to clarify and set at rest what the Committee th....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... effect so as to impact the decision of the CoC of the concerned corporate debtor - taken before the amendment of the said regulation. There is no indication in the Code as amended or the regulations to suggest that as a consequence of this amendment the decisions aleady taken by the concerned CoC prior to 3rd July, 2018 be treated as deemed to have been vitiated or for that matter, necessitating reversion of the proposal to CoC for recording reasons, that too beyond the statutory period of 270 days. A new life cannot be infused in the resolution plan which did not fructify within the statutory period, by such circuitous route. 61. Assuming that this provision was applicable to the cases on hand, non-recording of reasons for approving or rejecting the resolution plan by the concerned financial creditor during the voting in the meeting of CoC, would not render the final collective decision of CoC nullity per se. Concededly, if the objection to the resolution plan is on account of infraction of ground(s) specified in Sections 30(2) and 61(3), that must be specifically and expressly raised at the relevant time. For, the approval of the resolution plan by the CoC can be challenged o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....airness on the part of the banks and financial institutions in dealing with their borrowers to apprise them of the reason for not accepting the objections or points raised in reply to the notice served upon them before proceeding to take measures under sub-section (4) of Section 13. Such reasons, overruling the objections of the borrower, must also be communicated to the borrower by the secured creditor. It will only be in fulfillment of a requirement of reasonableness and fairness in the dealings of institutional financing which is so important from the point of view of the economy of the country and would serve the purpose in the growth of a healthy economy. It would certainly provide guidance to the secured debtors in general in conducting the affairs in a manner that they may not be found defaulting and being made liable for the unsavoury steps contained under sub- section (4) of Section 13. At the same time, more importantly, we must make it clear unequivocally that communication of the reasons for not accepting the objections taken by the secured borrower may not be taken to give occasion to resort to such proceedings which are not permissible under the provisions of the Act.....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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. 64. 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. 65. 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 v....