NCLT, Hyderabad quashes 75% vote requirement under section 30(4) of Insolvency and Bankruptcy Code, 2016[1]
In the unfolding of the master legislation of modern financial legislation in the Indian economy the Insolvency and Bankruptcy Code, 2016 (hereafter, the “IBC” / the “Code”), the adjudicating authority, National Company Law Tribunal, as prescribed under section 5(1) of the IBC,[2] has the distinct privilege of interpreting the Code from its intricate practical interpretation of the Code.
The National Company Law Tribunal, Hyderabad (“NCLT”) in K. Shashidhar vs. Kamineni Steel & Power Pvt. Ltd.,[3] has rejected the contention of Indian Overseas Bank, Central Bank of India and Bank of Maharashtra (hereafter, collectively referred as “Dissenting Banks”), wherein the group of 3 (three) banks were attempting to block an insolvency resolution plan by citing the 75% vote share requirement prescribed under section 30(4) of the Insolvency and Bankruptcy Code (“IBC”).
Brief facts of the matter are that Kamineni Steel & Power Pvt. Ltd. (“Corporate Applicant”) had filed an application under section 10 of the Code for admission of the Corporate Applicant for Corporate Insolvency Resolution Process. (“CIRP”). The Interim Reolution Professional appointed had formed a Committee of Creditors (“CoC”) wherein the Dissenting Banks were also a part thereto. During the CIRP a one-time settlement (“OTS”) as agreed to by the CoCas part of the resolution plan cleared by a group of creditors with 66.67% voting power. However, the Dissenting Banks with a combined voting power of 29.12% had resisted the resolution plan citing the provision of section 30(4) of the IBC, which prescribes that a CoC ma approve a resolution plan by a vote of not less than seventy five per cent (75%) of voting share of the financial creditors.
The NCLT rejected the contention of the Dissenting Banks and stated that Section 30(4)[4] merely states that the resolution plan, may, be approved by a vote not less than 75 per cent of voting share of the financial creditors, the Code is silent as to whether such percentage is out of the total voting share of the financial creditors or those present during meetings of the respective Committee of Creditors (“CoC”) of financial creditors. The NCLT further states that the threshold of 75% has to be read with various circulars issued by Reserve Bank of India from time to time. The division bench of NCLT, Hyderabad approved the OTS as agreed to by Kamineni Steel & Power as part of a resolution plan cleared by a group of creditors with 66.67 per cent voting power.
In the past, the NCLT Mumbai in Raj Oil Mills Ltd.,[5]and NCLT, Kolkata in SreeMetaliksLimited,[6]had quashed the threshold limit of 75% requirement in appointment of a resolution professional as prescribed under the provisions of section 22(2) of the IBC.[7] Thus, the Tribunals have been proactive in interpreting the Code wherever a practical problem arises which might lead to the rigidity of the Code, hence providing a more favorable application of the Code in the situations that arise from time to time, wherein the parties to the cases try innovating new methods to evade the law at hand and create new hybrid interpretations of the Code.
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[1] Swatilekha Chakraborty, BBA.LLB, Symbiosis Law School, Pune; Rishabh Bhojwani, Legal Manager, ICICI Bank, New Delhi (The views expressed are that of the author and not the organization).
[2]Part II Chapter I, Section 5(1): “Adjudicating Authority”, for the purposes of this Part, means NationalCompany Law Tribunal constituted under section 408 of the Companies Act, 2013”
[3]K. Shashidhar vs. Kamineni Steel & Power Pvt. Ltd. [CP (IB) No. 11/10/HDB/2017]
[4] Section 30(4): “The committee of creditors may approve a resolution plan by a vote of not less than seventy five per cent. of voting share of the financial creditors.”
[5]M/s Raj Oil Mills Ltd. [MA No. 362/2017 in CP No. 1132/i&BC/NCLT/MB/MAH/2017]
[6]Edelweiss Asset Reconstruction Company Limited v. SreeMetaliks Limited &Ors. [Company Application No. 82/2017 in C.P. No. 16/2017]
[7] Section 22(2): “(2) The committee of creditors, may, in the first meeting, by a majority vote of not less than seventy-five per cent. of the voting share of the financial creditors, either resolve to appoint the interim resolution professional as a resolution professional or to replace the interim resolution professional by another resolution professional.”
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