India: Section 30(4) Conundrum: Divergent : Divergent Views Taken By NCLT Mumbai And NCLT Hyderabad Bench

Section 30 (4) of the Insolvency and Bankruptcy Code("IBC/Code") that deals with Submission of resolution plan is in the midst of spotlight because of opposite views taken by Adjudicating Authority at Mumbai, NCLT Mumbai1 and Adjudicating Authority at Hyderabad, NCLT Hyderabad2. It will be apt to produce the relevant section of the code at this stage

"...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..."

The moot point of legal debate that emerged in the two orders of two Adjudicating Authorities was whether the approval by a committee of creditors (CoC) is of a mandatory nature i.e. no resolution plan can be valid without an approval of seventy five percent of voting share of financial creditors or it "may" be approved by a CoC by a majority of less than seventy five per cent and finally accepted by the adjudicating authority using its discretion under Section 31 (2) of the code. The view taken by the two benches is as follows:

ADJUDICATING AUTHORITY, NCLT MUMBAI

The Bombay bench of NCLT framed the issue whether the adjudicating authority has jurisdiction to exercise over a decision taken by CoC as contemplated in the Code. The Bench delved into the overall scheme of the Code and observed that it has been replete in the provisions of the Code mandating resolution approved by CoC means a resolution with vote not less than 75% of the voting share of CoC, and when for passing a resolution, a cap is set out as an inbuilt measure in a statute without leaving any ambiguity to the judiciary, the Adjudicating authority does not have any jurisdiction to alter the cap given by the legislation. Section 21 (8) was pressed into assistance for the proposition that in addition to all other sections wherever 75% voting aspect has been mentioned to the resolution of CoC, it has been categorically mentioned that all decisions of CoC shall be passed with vote not less than 75% of voting share of Financial Creditors.

The Bench hereinafter elucidated on the aspect as to how the Insolvency and Bankruptcy Code came into force for consolidation of various laws so as to have a single law for insolvency and bankruptcy. The proposition that reorganization or restructuring is the primacy of the Code was negative as there were many attempts like SICA, JLF which all failed. The Bench observed that the phrase "insolvency resolution of corporate persons" mentioned in the statement is inclusive of liquidation process for which the mandate of the statute, objects of the enactment and the report of the Committee who drafted the legislation was referred. The raison d'être for leaving everything to the domain of creditors according to the bench is because their stake is stuck in the Corporate Debtor and therefore they are the right persons to take a decision on their stake. In light of this, it was observed that the creditors had to attain super majority to take any decision in respect to sacrifice of their rights.

Furthermore the bench rescued itself from interpreting the provisions with any purposive interpretation when the terms are clear and straight and left that prerogative to NCLAT & the Apex Court i.e. Hon'ble Supreme Court.

NCLT HYDERABAD

The Hyderabad bench however took a diametrically opposite view on the moot point. The order of the Bench has been dissected under three heads. Firstly, it was held that the IBC is a new concept evolved with a certain objects to achieve in financial sector and timelines. Thus, bankers are duty bound to refer to instruction/guidelines issued by RBI from time to time for insolvency of a Company. As a result RBI circular N o . R B I / 2 0 1 6 - 1 7 / 2 9 9 / D B R . B P . B C .

No.67/21/.04.048/2016-17; dated 5th May, 2017 in which it is stressed for early identification of stressed Assets and timely implementation of a Corrective Action Plan to preserve the economic value of stressed assets was referred. In para 4 of the Notification, RBI changed the percentages and Number required for Approval of a corrective action plan.,

"...the decisions agreed upon by a minimum of in the JLF would be 60 percent of creditors by value and 50 percent of creditors by number..."

Secondly, in contradistinction with the Mumbai Bench it was concluded that the main preamble of the IBC is the resolution of the Corporate Debtor rather than the liquidation of the Corporate Debtor. Finally, relying on the word "may" in Section 30(4) it was observed that the CoC can approve a plan with less than 75 percent too and it was incumbent upon the Adjudicating Authority to use its judicial discretion under Section 31

(2) to approve or reject the plan when it doesn't touch the ceiling of 75 percent wherein it had to consider the spirit of the code and to grant due consideration for the socio economic benefit/cause/etc. The Bench was swayed by the consideration that the Corporate Debtor was located in a remote district and was providing job opportunities to the marginalized sections of the society.

It is hoped that the appellate forums will provide much needed clarity to this crucial provisions to balance the interest of all stakeholders in the insolvency resolution process.

Footnotes

1 CP (IB) No. 11/10/HDB/2017

2 MA 557,530,529 & 590/2017,IA 72/2017 in C.P 01/I&BP/2016

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Topics
 
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions