The Committee of Creditors will play very important role in the regime of the insolvency. The important decisions which will affect the resolution of the insolvency of the corporate debtor will be taken by the Meeting of the Committee of Creditors in short it is also called as COC. Generally as per IBC, the COC consists of the financial creditors only. In other words all the Creditors who have financed the corporate debtor against the consideration of time value of money are included in the Committee of Creditors. In case if there is no financial creditors, in such case eighteen largest Operational Creditors along with one representative from workmen and from employee will be the members of the COC. The powers of these members are quiet akin to the powers of the members of the financial creditors .The Operational creditors will not find any place in the COC except in case if the debt of the operational creditors are more than 10% , in such case the operational creditors will participate the COC through a representative.
The reason for the inclusion of financial creditors in the COC meeting is that the debts of the financial creditors are very large in comparison to the debt of the operational creditors. The number of financial creditors is very small in comparison to the number of operational Creditors. Further financial creditors are interested in the resolution of the insolvency of the corporate debtor whereas the operational creditor s is interested in the recovery of the debt but not in the resolution of the insolvency. Financial creditors are having capacity and willingness to take the risk of restructure and rehabilitation of the debt of the Corporate debtor but whereas the operational creditors are not having such capacity and calibre to restructure the debt of the Corporate debtor. Further the financial creditors are having capacity to take sacrifice if the need arises for resolution of insolvency of the corporate debtor but whereas the Operational creditors are not having such capacity and also willingness to take sacrifice for resolution of insolvency. Hence the financial creditors are included as members in the Committee of Creditors.
As per Section 24 of the Code, the meeting of Committee of Creditors will be conducted by the Insolvency Professional. The Insolvency Professional will act as chairperson of the Meeting .The members of the committee of Creditors may attend the meeting either in person or by means of electronic. Notice of meeting must have at least five days prior to the meeting. The notice may be sent by hand delivery or by post. The notice must be given to every participant. The word Participant is different from the word member. The participant does not have voting rights but whereas member will have voting rights for passing resolution in the meeting. The suspended Board Members or Partners, Operational Creditors if their aggregate debt is more than 10% of the total debt, are the participants. Non receipt of notice by any member or participant of the committee shall invalidate the decision taken at such meeting. Hence notice must be given to every participant. It is the responsibility of the Resolution Professional to issue notice to all the participants of the meeting. It is sufficient if the notice has been sent to the e-mail address provided to the Resolution Professional. But the Committee of Creditors is empowered to reduce the notice period from five days to 24 hours if they feel necessary. In case authorised representative is there, minimum notice period of 48 hours is required
To whom the Notice is to be give?
The Resolution Professional has to give notice to all the Participants
a) Members of the Committee of Creditors including Authorised Representative if any
b) Suspended Board members or Partners
c) Operational Creditors if the aggregate debt is not less than 10% of the total debt
The suspended Board members as well as Operational Creditors can attend the meeting as participants that mean they can deliberate on the issue and discuss their opinion but they cannot vote.
As per regulation 22 of CIRP 2016, minimum of 33% of voting rights are required to be present for any meeting to hold good. The members need not attend in person; they can attend even by video conferencing or by any audio-visual means. Here the number of persons present is not the criteria, the criteria is percentage of voting rights present. Suppose if the single member is having more than 33% of voting rights can call for the meeting. Only members will constitute the quorum but not the participants. The authorised representative will also be counted for quorum purpose. If the stipulated quorum is not present within 30 minutes, the meeting shall be adjourned at the same time and place on the next day unless the committee decided previously otherwise. The committee is empowered to modify the percentage of voting rights required for quorum in respect of the future meetings. In such case all future meetings will be conducted as per the modified Quorum percentage. RP should confirm that the quorum is present not only at the start of the meeting but also present throughout the meeting.
When voting can takes place?
As per Regulation 21(3) (b) read with 25(5) of CIRP 2016, Voting should not be conducted even if single member of COC is absent. So voting will take place only if the all the members are present either in person or in electronic .This is quiet contrary to the rules prescribed in Companies Act 2013. As per the Companies Act, if the minimum quorum is present, discussion can takes place and voting can be conducted.
As per the above the following inference can be drawn
1. For holding meeting = 33% voting rights are required to be present
2. For conducting voting = All members must present either in person or by electronic
Hence even if single member is absent, it will not affect the holding of meeting provided 33% voting rights are present. If single member is not present, no voting should be conducted. Whenever if any member is absent, the Insolvency Professional has to make arrangements for e-voting for the absent member to make the voting is valid .If all the members of the committee of Creditors are not present, then Insolvency Professional has to circulate the minutes to all the members within 48 hours of the conclusion of the meeting through electronically. Then RP seek a vote on the matters listed for voting by electronic voting system where the voting shall be kept open for twenty four hours from the circulation of the meeting. So electronic voting system is only for those members who did not attend the meeting or attended the meeting but abstained from voting.
Each Financial Creditor has to vote as per the voting rights assigned to him. The voting right share means the share of the voting rights of a single financial Creditor in the committee of Creditors which is based on the proportion of the financial debt owed to such financial creditor in relation to the total financial debt owed by the corporate debtor to all the members of the committee of Creditors.
Suppose if the Corporate Debtor owe an amount of Rs.100 /- to all the financial Creditors consists of A,B and C. Corporate debtor owe an amount of Rs.40/- to A and an amount of Rs.20/- to B and an amount of Rs.40/- to C. Now A will get voting share of 40%, B will get voting share of 20% and C will get voting share of 40%
In the above situation, A & C are present but B is absent for voting in the meeting. In such case if the resolution is passed by A and C with 80% voting rights. Is it valid ?
The answer is no. Because for conducting voting in the meeting all the members are present. This is quiet contrary to the Companies Act. As per companies Act if the minimum Quorum is present, then the meeting can be conducted and voting takes place in that meeting and it is still valid even if one member is absent. But in IBC .even if one member is absent, the voting cannot be conducted .Instead option of electronic voting method is to be adopted for the absent member. .
As per Regulation 21(3)(b)with 25(5) of CIRP 2016,no voting can take place at the meeting in case even a single member of the COC is absent The Resolution Professional has to make arrangements for conducting e-voting facility to the absent member .
Suppose if the member present in the meeting but abstains from voting on resolution?
This is a peculiar position. What is to be done in this particular case? Whether the Members vote will be discarded both in the neumarator or denominator? Let us examine this issue
If the member of the committee of Creditors present in the meeting and voted on resolution. This is a very straight case. In this case members vote would be calculated in the total number of votes casted in the denominator and the vote would be counted as yes in the numerator for the purpose of calculating the votes casted in favour of the resolution.
Similarly if the member is present in the meeting but abstains from voting on resolution because very often the reason attributed for not participating in the voting is approval from competent authorities not obtained. In such case what is to done?
The Hon!ble NCLAT in the case of Tata Steel limited Vs Liberty House group it was held that even if some members who are having voting share of 2.88% have remained absent and 97.12% voting shares of members being present in the meeting of the COC and voted for resolution,it was held that resolution plan was passed because voting share of 2.88% should not be counted for the purpose of counting the voting share of COC accordingly resolution was passed.
But the Humble Appellate authority in the matter of IDBI Bank ltd Vs Mr Anuj Jain,JP Infratech ltd and Anr it was held that if any of the financial creditor remains absent from voting, their voting percentage should not be counted for the purpose of counting the voting share . Hence votes of those members who are absent from the COC meeting would not be taken into account for calculating the voting percentage and thereby not included in the denominator.
In terms of regulation 25 (3) , the resolution Professional shall take a vote of the members of the committee present in the meeting on any item listed for voting after discussion on the same. So voting should take place only after held discussion on the subject. As per regulation 25(4) at the conclusion of a vote at the meeting, the resolution Professional shall announce the decision taken on items along with the names of the members of the committee who voted for or against the decision or abstained from voting. As per regulation 26(4) which provides that the Resolution Professional at the conclusion of a vote held under the regulation, the resolution professional shall announce and make a written record of the summary of the decision taken on a relevant agenda item along with the names of the members of the committee who voted for or against the decision or abstained from voting
In case if any Financial Creditor has not given his mandate to Authorised Representative, in such case Authorised representative will abstain from voting on behalf of such Financial creditor. This is because that the authorised representative cannot act against the interest of the financial creditor he represents. And shall always acts in accordance with prior instruction.
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Mr Lakkaraju Srinivas | Advocate & Insolvency Professional | Kondapur, Hyderabad