K. Sashidhar vs Indian Overseas Bank

REPORTABLE

IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO.10673 OF 2018 K. Sashidhar …..Appellant(s)

:Versus:

Indian Overseas Bank & Ors. ....Respondent(s)

WITH C.A. No.10719 of 2018, C.A. No.10971 of 2018 and SLP (C) No.29181 of 2018

JUDGMENT

A.M. Khanwilkar, J.

1. Leave granted in SLP (C) No.29181 of 2018.

2. All appeals were taken up for hearing at the notice stage

with the consent of the contesting respondents.

3. These appeals have arisen from the common judgment

and order of the National Company Law Appellate Tribunal (for

Signature Not Verified short “NCLAT”), New Delhi, dated 6th September, 2018, Digitally signed by DEEPAK SINGH Date: 2019.02.05 14:36:57 IST Reason: rendered in appeals filed in relation to the insolvency

resolution process under the provisions of the Insolvency and 2

Bankruptcy Code, 2016 (for short “I&B Code”) concerning

Kamineni Steel & Power India Pvt. Ltd. (for short “KS&PIPL”),

having its registered office at Hyderabad, Telangana 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 3

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 debtor.

7. KS&PIPL was incorporated as a private limited company

on 20th October, 2008. Its steel division commenced operation

on 30th March, 2013. The company was functional till the

Financial Year 2014­15. However, it could not continue

beyond this period due to deficient working capital and

various other factors including financial crisis, leading to

heavy operational losses and consequent erosion of the entire

net worth. Attempts were made to revive the company by

forming a joint lenders forum by the consortium of banks. As

that attempt did not fructify, the company filed an application

with BIFR under Section 15(1) of Sick Industrial Companies

(Special Provisions) Act, 1985 on 15th November, 2016. The

said proceedings abated due to a notification dated 25 th 4

November, 2016, as to the repeal of the Act. Eventually, the

company filed a petition under Section 10 of the I&B Code

read with Rule 7 of the Insolvency and Bankruptcy

(Application to Adjudicating Authority) Rules, 2016, seeking to

initiate Corporate Insolvency Resolution Process (CIRP)

concerning the said company. That petition was admitted on

10th February, 2017, by the NCLT Hyderabad and an Interim

Resolution Professional (for short “IRP”) came to be appointed

with directions to constitute a CoC. The CoC was constituted

and the first meeting was held on 8 th March, 2017 to confirm

the appointment of IRP and authorise the lead bank, namely

the Indian Bank to inform the approved valuers that they

should proceed with their valuation. The second meeting of

CoC was held on 6th April, 2017, for taking on record the

predicated expenses and essential costs and factory

maintenance costs and to confirm about the operation of the

bank account with lead Bankers, Indian Bank by IRP and

Chief Financial Officer. In the third meeting of CoC, convened

on 12th May, 2017, the corporate debtor made a presentation 5

for a resolution plan, giving three options. In that meeting, it

was resolved to appoint SBI Capital Markets Limited to

determine the sustainable debt of the corporate debtor to

enable the creditors to assess the viability of the resolution

plan. In the fourth meeting of CoC, held on 27 th June, 2017,

the resolution plan submitted by the corporate debtor was

reviewed and a draft Techno Economic Viability report by SBI

Capital Markets Limited was also considered. It is not

necessary to dilate on other aspects 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 6

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 Bank,

which had 22.33% of voting power, conveyed its disapproval to

the proposed resolution plan. JMFARC Limited, having

12.39% of voting power, had already rejected the resolution

plan in the previous meeting held on 26th September, 2017.

Both these banks, however, agreed to reconsider the

resolution plan if a portion of the sustainable debt was to be

increased. The corporate debtor was asked to submit a fresh

One Time Settlement (OTS) proposal through email to all the

bankers for consideration. Accordingly, the corporate debtor 7

sent an email on 18th October, 2017, with another OTS

scheme proposal as an alternative to the resolution plan

already submitted. The corporate debtor offered an OTS

scheme proposal of Rs.525 Crore with a structured repayment

period indicated therein. In response, the Indian Bank,

through an email sent on 25th October, 2017, called upon the

corporate debtor to file an OTS scheme proposal for 600 Crore.

After interacting with the bankers, a counter proposal was

given by the corporate debtor which was eventually considered

in the 9th CoC meeting held on 27th October, 2017. The

proposal submitted by the corporate debtor on 26 th October,

2017, was approved by the members of the CoC having only

55.73% voting share namely Indian Bank, JM Financial Asset

Reconstruction Co. Ltd., Allahabad Bank and Andhra Bank.

The Indian Overseas Bank having voting share of 15.15%,

rejected the resolution proposal and cited reasons through its

letter dated 27th October, 2017. Three other Banks, namely

Oriental Bank of Commerce, Central Bank of India and Bank

of Maharashtra, having 29.12% voting share, expressed that 8

they remained open, awaiting in­principle approval from their

respective sanctioning authority. Eventually, on 30 th October,

2017, Oriental Bank of Commerce, having 10.94% voting

share, sent an email conveying their “in­principle approval” to

the proposed resolution plan qua revised OTS scheme and

that their final approval would be subject to similar approvals

from the co­lenders. On the same day, Bank of Maharashtra,

having 6.36% voting share, conveyed that they were open to

consider the revised resolution plan. The Central Bank of

India, having 11.82% voting share, conveyed its disapproval to

the revised resolution plan. Resultantly, as on 30 th October,

2017, the voting share of consenting Banks expressly

approving the proposed resolution 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 9

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 November, 2017,

eventually, allowed the petition filed by the corporate debtor

and approved the resolution plan/revised OTS scheme, as

submitted by the resolution professional vide affidavit dated

3rd November, 2017, and further declared that the moratorium

imposed on 10th February, 2017, ceased to have effect from the 10

date of receipt of copy of the order. A further direction came to

be issued that the corporate debtor shall reinstate all the

employees who were on the rolls of company. Aggrieved by the

said decision, three financial creditors who were part of the

CoC, namely Indian Overseas Bank, Central Bank of India and

Bank of Maharashtra filed appeals under Section 61 before the

NCLAT questioning the authority of NCLT Hyderabad, to

approve of the resolution plan, despite the fact that the same

did not receive approval of not less than 75% of voting share of

financial creditors. The Managing Director of the corporate

debtor also filed an independent appeal under Section 61 of

the I&B Code with reference to the observations made by the

NCLT Hyderabad regarding the corporate guarantee to be

proceeded with. As aforesaid, these appeals were heard

together along with appeals concerning another corporate

debtor, namely IIL and came to be disposed of by the common

impugned judgment dated 6th September, 2018, wherein it has

been held that approval to the proposed resolution plan by a

vote of not less than 75% of voting share of the financial 11

creditors was mandatory and it was not open to the

adjudicating authority to disregard the mandate of the CoC by

adopting a convoluted approach. Against this decision, the

Managing Director of the corporate debtor, namely (KS&PIPL)

has filed a civil appeal under Section 62 of the I&B Code in

this Court, being Civil Appeal No.10673 of 2018.

8. The second set of appeals pertain to the corporate debtor­

IIL, being Civil Appeal No.10719 of 2018 filed by the promoter

of the corporate debtor who holds 21.82% shares and was the

erstwhile Chairman and Managing Director of the company.

Civil Appeal No.10971 of 2018 is filed by the workers’ union of

the same corporate debtor, namely, Innoventive Industries

Kamgar Sanghathana. The workers’ union has filed another

appeal arising from SLP (C) No.29181 of 2018 against the

judgment and order dated 24th September, 2018 passed by the

High Court of Judicature at Bombay in Writ Petition (C)

No.136 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 12

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 Bankruptcy application under the I&B Code

against the corporate debtor (IIL) in December 2016. That was 13

admitted by the NCLT Mumbai, being the adjudicating

authority, on 17th January, 2017. An IRP was appointed and a

moratorium was declared. The said corporate debtor asserts

that despite the pendency of applications, the company had

achieved a turnover of Rs.337 Crore upto March 2017, with

operational revenues of Rs.125 Crore during the relevant

period till September 2017. The total indirect tax paid by the

company is approximately Rs.8.27 Crore during the same

period. Be that as it may, consequent to the order of the

adjudicating authority (NCLT) dated 17th January, 2017, the

first CoC meeting was held on 15 th February, 2017 wherein the

appointment of IRP was confirmed. Eventually, in the sixth

CoC meeting held on 19th June, 2017, it was unanimously

resolved to extend the insolvency resolution period till 14 th

October, 2017. The IRP then approached 27 parties (16

prospective financial investors and 11 prospective strategic

investors) out of which 16 parties (11 financial investors and 6

strategic investors) showed interest in the company. After

screening of the proposed resolution applicants, the subject 14

resolution plan was submitted to the IRP on 3 rd September,

2017, which was taken up for consideration by the CoC in its

meeting on 4th October, 2017, by e­voting. Financial creditors

holding 66.57% voting share voted in favour of approving the

proposed resolution plan whereas the dissenting financial

creditors, having 33.43% voting share, voted against the

proposed resolution plan. Resultantly, the proposed resolution

plan was not approved or came to be rejected for want of

support of the requisite percent of financial creditors, having

voting share of not less than 75%. The IRP then filed an

application on 12th October, 2017, before the adjudicating

authority (NCLT) praying for initiating liquidating process

against IIL. The NCLT Mumbai, after considering the

submissions of both sides, by order pronounced in court on

23rd November, 2017 and delivered on 8th December, 2017,

directed initiation of liquidation proceeding against the

corporate debtor (IIL). The appellant in the leading appeal of

the second set of appeals, being the former Chairman and

Managing Director of the corporate debtor (IIL) had filed an 15

interim application before the NCLT Mumbai 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. 16

This appeal was heard along with the appeals concerning

another corporate debtor (KS&PIPL) and disposed of together

by the NCLAT as common issue was involved in all these

appeals. As aforesaid, by the impugned judgment NCLAT has

held that the requirement of approval of resolution plan by

vote of not less than 75% of voting share of financial creditors

was mandatory and hence dismissed the appeal preferred by

the appellant. Aggrieved, the said appellant and the workers’

union of KS&PIPL have filed appeals against the said decision

of NCLAT and the High Court respectively.

10. Mr. C.U. Singh, learned senior counsel appearing for the

appellant in the case of corporate debtor KS&PIPL had

canvassed two­pronged submissions. The first is on the basis

of the unamended provisions as applicable on the date of the

resolution passed by the CoC in October, 2017. It is urged that

on a fair interpretation of those provisions, it ought to be held

that the same were not mandatory. Even assuming that the

same were mandatory, considering the fact that a significant

section of the financial creditors had abstained from voting on 17

27th October, 2017, their votes were required to be ignored for

the purpose of computing the required percentage of voting

share. In that case, it would work out to be more than 75%. In

that, the percentage of votes for approval (55.73%) of the

resolution proposal and the voting share rejecting the proposal

was only 15.15%. Taking these votes only, the proportionate

percentage of the voting share for approval will obviously be

more than 75% (i.e. approximately 78.63%). Thus understood,

the NCLT Mumbai ought to have approved the resolution

proposal. The second limb of the argument is that the NCLAT,

which had decided the appeals on 6 th September, 2018, ought

to have taken into account the amendments brought into force

w.e.f. 23rd November, 2017 and followed by another

amendment brought into force w.e.f. 6 th June, 2018 to the

provisions of I&B Code and including the amendment to the

Regulations of the Insolvency and Bankruptcy Board of India

(Insolvency Resolution Process for Corporate Persons)

Regulations, 2016 brought into force from 4 th July, 2018. For,

the same came into force during the pendency of the appeals. 18 Further, the purport of the said amendments posit that the

CoC should be objective in its approach and consider the

feasibility and viability of the resolution proposal and must

assign reasons for approval or rejection 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 in­principle 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 19

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 India1,

Government of India Vs. India Tobacco Association 2 and

Zile Singh Vs. State of Haryana3. In support of the

argument that the amendment to Section 30(4) applied to

pending proceedings, reliance has been placed on the

judgment in Mithilesh Kumari & Another Vs. Prem Behari

Khare4, Dahiben (Widow of Ranchnodji Jivanji) & Ors. Vs.

Vasanji Kevalbhai (dead) & Others5. Reliance is also placed

on the decision in B.K. Educational Services Private Ltd.

Vs. Parag Gupta & Associates6 which had considered the

applicability of Section 238­A inserted by way of the same

amendment Act in the I&B Code w.e.f. 6 th June, 2018. In this

decision, the court held that the legislative intent behind the

amendment was to apply the Limitation Act from the very

1 (2018) SCC Online SC 1386­ Paragraphs 13­16. 2 (2005) 7 SCC 396 Paragraphs 14­16, 24, 26&28. 3 (2004) 8 SCC 1 Paragraphs 14­16.

4 (1989) 2 SCC 95. Paragraph 24 and also see paragraphs 1, 23 and 25. 5 (1995) Supp. 2 SCC 295. Paragraph 13 and also see Paragraphs 12, 14 and 15. 6 (2018) SCC Online SC 1921 Paragraph 45.

20

beginning to NCLT and NCLAT while deciding the applications

filed under Sections 7 and 9 of the I&B Code and the appeals

therefrom. Reliance is also placed on the decision in State

Bank of India Vs. Ramakrishnan7 which had dealt with

amendment by way of substitution to Section­14(3) of the I&B

Code concerning surety in a contract of guarantee for a

corporate debtor. The court held that the amendment was

retrospective. Reliance is also placed on the decision in

Rustom & Hornby (I) Ltd. Vs. T.B. Kadom 8 in which this

court gave retrospective construction to Section 2­A of the

Industrial Disputes Act, 1947 and also in Bharat Singh Vs.

Management of New Delhi Tuberculosis Centre, New

Delhi9 to the same effect. The thrust of the argument is that

the object of the I&B Code is resolution rather than liquidation

as also the maximization of value of assets of such persons, to

promote entrepreneurship. To buttress this argument, reliance

is also placed on the report of the Insolvency Law Committee

7 (2018) SCC Online SC 963. Paragraph 34.

8 (1976) 3 SCC 71. Paragraph 6.

9 (1986) 2 SCC 614. Paragraphs 2, 5­6, 10­14.

21

in March 2018. Paragraph 11.6 therein states that in order to

further the stated object of the I&B Code to promote

resolution, the voting share for approval of resolution plan

may be reduced to 66%. It is submitted that this should have

been taken into account by the NCLAT in reference to the

amended provisions brought into force during the pendency 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 22

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 they did not do so in

good faith but with malicious intent, warranting intervention

by the adjudicating authority and the appellate authority.

11. Mr. A.M. Singhvi, learned Senior Counsel appearing for

the appellant concerning the corporate debtor (IIL) would

submit that the CoC, being the custodian of public interest, is

under a statutory duty to exercise its power under Section

30(4) of the I&B Code reasonably and fairly. Section 30(4)

posits an obligation upon the CoC to adopt a resolution plan

which is ex facie more viable than liquidation. According to

him, the amendments to Section 30(4) in particular brought

into force w.e.f. 23rd November, 2017 are only

declaratory/clarificatory of the law and resultantly, 23

retrospective. He submits that giving reasons for the view

expressed on the resolution plan, be it for approval or

rejection, is the quintessence to fulfill the requirement of a

reasonable and fair approach of the CoC. Reasons so given,

would demonstrate whether it is a bonafide or malicious act of

the financial creditors. That has now been clarified and

restated by the amending regulation 39(3) which has come

into force w.e.f. 4th July, 2018. Being a clarificatory

amendment, the same would take effect retrospectively and is

applicable even to pending proceedings. It is then contended

that if no reason is assigned or forthcoming, the court is not

powerless to strike down the exercise of power by the

concerned financial creditor if it was possible to infer from the

circumstances emanating from the record that the exercise of

such power was wrongly exercised. To buttress this

submission reliance was placed upon Mardia Chemicals

limited and Others Vs. Union of India and Others 10 which

had read the requirement of fairness and reasonableness into

10 (2004) 4 SCC 311, paragraph 45.

24 Section 13 of the SARFAESI Act. The court declared that

reasons must be given and communicated. This “reading in” of

the principle of fairness and reasonableness, was eventually

codified in the form of Section 13(3­A) of that Act. Such

interpretation was inexorable in respect of provisions as

draconian as Section 30(4), resulting in the inevitable

consequence of liquidation of the corporate debtor. The

provisions of the I&B Code must be so construed as not to be

financial creditor centric but to be an inclusive approach

where all stakeholders’ interests are balanced and particularly

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 25

(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 Agriculture, Fisheries and Food 11

and Dhampur Sugar Mills Ltd. Vs. State of U.P. and

Others12. Learned counsel contends that abdication of duty by

the CoC to consider the feasibility and viability projected in the

proposed resolution plan would be fatal. It would be a case of

non application of mind by the CoC, if not a malicious

approach in rejection of the proposed resolution plan. The test

of limits of judicial review, as expounded in Tata Cellular Vs.

11 (1968) 2 WLR 924 12 (2007) 8 SCC 338 26

Union of India13 ought to be invoked to rein in the unbridled

exercise of power by the CoC. The Tribunal could certainly

discard the view of the dissenting financial creditors if it was

satisfied that such a decision could not be reached by any

reasonable and prudent person. It is also possible for the

adjudicating authority (NCLT) to intervene if the

circumstances suggest that the decision of dissenting financial

creditors was the outcome of abuse of power or being

irrational and unreasonable. Reliance is also placed on the

decision in Union of India and Another Vs. Cynamide India

Ltd. and Another14 and Shri Sitaram Sugar Company

Limited and Another Vs. Union of India and Others15. As

regards the amendment brought into effect from 23 th

November, 2017 to Section 30(4) of the I&B Code, it is

contended that the same must be construed as only

clarificatory and resultantly, be given retrospective effect.

Inasmuch as the discretion given to the constituents of CoC,

namely the financial creditors under Section 30(4) of the I&B 13 (1996) 6 SCC 651 Paragraphs­73 and 77.

14 (1987) 2 SCC 720 Paragraph 4 15 (1990) 3 SCC 223 Paragraphs ­ 47­49, 51­53, 57­58. 27

Code is required to be exercised in a just manner and by

giving due regard to the feasibility and viability of a plan

proposed for revival of the corporate debtor. There is nothing

else relevant for discharging the statutory obligation of

approving or rejecting the proposed resolution plan. With

regard to the second amendment to Section 30(4) of the I&B

Code which came into effect from 6 th June, 2018, reducing the

voting threshold from 75% to 66%, learned counsel contends

that even the same operates from the time the section was

brought on the statute book. For, the legislature consciously

lowered the threshold requirement to 66%. It was to infuse

more flexibility in the resolution processes and to maximise

the effort for revival of the corporate debtor in the 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 28

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, Section 29A of the I&B Code came into

force only from 23rd November, 2017, and it did not exist when

the resolution plan was considered by the CoC. Further, the

scope of appeal preferred by the appellant was to call upon the

adjudicating authority to interfere with the unreasonable

rejection of the resolution plan by the dissenting financial 29

creditors and not to propound an independent plan of the

appellant. Thus understood, Section 29A of the I&B Code

would have no application and in any case, if the proposed

resolution plan is to be taken forward, the appellant has no

causal connection with the resolution applicant. Learned

counsel submits that the appeal be allowed and the matter be

restored to the file of the adjudicating authority (NCLT) for

reconsideration of the proposed resolution plan afresh.

12. Mr. Colin Gonsalves, learned Senior Counsel appearing

for the workers’ union concerning corporate debtor (IIL)

submits that the rejection of the plan would have a direct

impact on the workers engaged by the corporate debtor.

According to him, the resolution plan manifests that the

company is a viable company and all efforts should be made to

revive the company and not to shove it into liquidation

because of the whims and fancies of the minority financial

creditors or, for that matter, in the guise of their commercial

wisdom. Reliance is placed on United Bank of India, 30

Calcutta Vs. Abhijit Tea Co. Pvt. Ltd. and Others 16 and

Karan Singh and Others Vs. Bhagwan Singh (Dead) By

Lrs. And Others17 and additionally, on the decision of the

NCLAT in the case of another corporate debtor (Alok

Employees Benefit and Welfare Trust) in Company Appeal (AT)

(Insolvency) No.344 of 2018 decided on 29 th November, 2018.

He had also invited our attention to the chart given in

Economic Survey 2017­18 Volume 2, to contend that there will

be hardly any impact if this Court was to remit the case for

reconsideration on the basis of the amended provisions by the

adjudicating authority (NCLT) and especially because there is

ample material on record to indicate that the corporate debtor

(IIL) is a viable company and needs to be revived and not

liquidated.

13. On the other hand, Mr. Shyam Divan, learned Senior

Counsel and Ms. Pragya Baghel countered the above

submissions and supported the conclusion reached by the

NCLAT that the requirement specified in Section 30(4) of the

16 (2000) 7 SCC 357 Paragraph 20.

17 (1996) 7 SCC 559 Paragraph 7.

31

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 time­bound

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 32

commercial decision taken by the financial creditors to

approve or not to approve the proposed resolution plan. There

is complete autonomy regarding the commercial decision or

wisdom of the financial creditors. That cannot be questioned

by the adjudicating authority (NCLT). Whereas, the judicial

review is circumscribed to the grounds specified in the Act

itself, which is a self­contained Code. The legislative intent

makes it amply clear that the Parliament was conscious about

the fact that some business entities will fail and cannot be

revived within the specified time but that cannot suppress the

need for addressing the serious concern of financial creditors

due to increasing financial pressure on them because of non­

performing assets of the corporate debtor. The promoters have

no divine right to continue to manage such corporate debtor.

The I&B Code predicates the necessity of interest in the

management of such corporate debtors being handed over to

professionals during the moratorium period so as to make a

sincere effort to revive the company within the specified time.

Our attention was invited to Bankruptcy Law Reforms 33

Committee Report dated 4th November, 2015 and Insolvency

Law Committee Report dated 26th March, 2018, to buttress the

argument about the legislative intent behind the enactment of

the I&B Code and the concerned amendment. Reliance has

been placed on Innoventive Industries Ltd. (supra), which had

adverted to the legislative intent behind the I&B Code.

14. Mr. Divan, appearing for ICICI Bank in the case of

corporate debtor (IIL), submits that there was only one

resolution plan. Neither has the resolution applicant

challenged the decision of the adjudicating authority (NCLT)

nor has it been made party in the appeal. The outstanding

amount payable by the corporate debtor (IIL) is around

Rs.1435 Crore. He submits that the resolution plan is a

complex document unlike a bid or tender document. The

professionals associated with the dissenting financial creditors

have analysed the same and were of the considered opinion

that it is not a feasible and achievable target ­ rather it is a

speculative proposal. The dissenting financial creditors

exercised their commercial wisdom after taking into account 34

all the relevant aspects. It is not open to undertake scrutiny of

that decision of the dissenting financial creditors. Neither can

the IRP nor the adjudicating 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 35

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 terms of the mandate in the I&B Code.

The amendments cannot be construed otherwise so as to

render the legislative intent otiose. He submits that, in law,

there is a presumption of prospective application of the

amended provisions. There is no express provision ordaining

retrospective application of the amended provisions. The

amended provisions unambiguously predicate that the same

would come into force with effect from the stated date. In the

present case, the timeline for completion of the resolution

process expired on 14th November, 2017, and for which reason

the amended provision lowering the voting share to 66% will

be of no avail. As regards the amendment to Regulation 39,

that has come into force w.e.f. 4 th July, 2018, and obviously

would have prospective application. In any case, non­

disclosure of the reason by the dissenting financial creditors,

would not vitiate the concluded cause of action upon 18 (2018) SCCOnline 1733, Paragraphs 64, 78, 83 and 88 36

exercising the vote to reject the proposed resolution plan. That

position cannot be unsettled on the basis of the amended

regulation. Learned counsel has placed reliance on the case of

Karnataka State Industrial Investment & Development

Corpn. Ltd. Vs. Cavalet India Ltd. and Others.19. As

regards the concern expressed by the workers union of the

corporate debtor (IIL), it is submitted that the workmen would

get the highest priority in terms of Section 53 of the I&B Code.

Moreover, the fact that the liquidation process has been

initiated in respect of the company does not mean that the

possibility of sale of the company as a running concern has

been completely ruled out. Thus, the interests of the workers

engaged by the corporate debtor will be taken care of as per

the statutory command. The sum and substance of the

argument is that the adjudicating authority (NCLT) was

justified in rejecting the applications filed by the appellants

and recorded the factum of rejection of the proposed

resolution plan with the inevitable direction to initiate process

19 (2005) 4 SCC 456 Paragraphs 13 and 19 37

for liquidation of the company under Section 33 of the I&B

Code. In that view of the matter, no interference is warranted

with the impugned decision of the NCLAT.

15. Ms. Pragya Baghel, appearing for Indian Overseas Bank

in the case of corporate debtor (KS&PIPL), having voting share

of 15.15% and being one of the dissenting 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 38

creditors. Any other interpretation would result in re­writing

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 Another20 and Rajeev

Chaudhary Vs. State (NCT) of Delhi21. As regards the

argument of retrospective application of the amended

provisions, in particular, reducing the voting share from 75%

to 66%, learned counsel has placed reliance on the decision of

this Court in Hitendra Vishnu Thakur and Others Vs.

State of Maharashtra and Others22. The appellant and

respondents 1­3 & 5­8 in C.A. No.10673 of 2018 and appellant

and respondents 2 & 20 in C.A. No.10719 of 2018 have filed

written submissions through their counsels, elaborating the

above points.

16. Ms. Prabha Swami, appearing for the resolution

applicant (Suyash Outsourcing Pvt. Ltd.), has submitted that

20 (2006) 2 SCC 740. Paragraphs 13­19.

21 (2001) 5 SCC 34 Paragraphs. 3 and 4.

22 (1994) 4 SCC 602 Paragraph 26.

39

the resolution plan was approved on certain conditions and

the resolution applicant assures to abide by those conditions.

Further, as per the liberty given to the resolution applicant,

appropriate affidavit has now been filed to place that

assurance on record.

17. Ms. Mahima Singh, learned counsel appearing for the

Official Liquidator in the case of corporate debtor (IIL), had

sought liberty to place on record certain subsequent

developments which may have bearing on the concerned

appeals. That affidavit dated 23rd November, 2018, has also

been filed and is allowed to be taken on record.

18. Having heard learned counsel for the parties, the moot

question is about the sequel of the approval of the resolution

plan by the CoC of the respective corporate debtor, namely

KS&PIPL and IIL, by a vote of less than seventy five percent of

voting share of the financial creditors; and about the

correctness of the view taken by the NCLAT that the

percentage of voting share of the financial creditors specified

in Section 30(4) of the I&B Code is mandatory. Further, is it 40

open to the adjudicating authority/appellate authority to

reckon any other factor (other than specified in Sections 30(2)

or 61(3) of the I&B Code as the case may be) which, according

to the resolution applicant and the stakeholders supporting

the resolution plan, may be relevant?

19. This Court in its recent decisions has elaborately

adverted to the legislative history and delineated the broad

contours of the provisions of the I&B Code. The latest being

the case of Arcelormittal (supra) followed by B.K.

Educational (supra) and Innoventive Industries Limited

Vs. ICICI Bank and Another.23 In the present case, however,

our focus must be on the dispensation 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).

23 (2018) 1 SCC 407 41

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 on hand, the

provisions contained in Chapter II will be significant. From the

scheme of the provisions, it is clear that the provisions in Part

II of the Code are self­contained code, providing for the

procedure for consideration of the resolution plan by the CoC. 42

21. The stage at which the dispute concerning the respective

corporate debtors (KS&PIPL and IIL) had reached the

adjudicating authority (NCLT) is ascribable to Section 30(4) of

the I&B Code, which, at the relevant time in October 2017,

read thus:

“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.”

If the CoC had approved the resolution plan by requisite

percent of voting share, then as per Section 30(6) of the I&B

Code, it is imperative for the resolution professional to submit

the same to the adjudicating authority (NCLT). On receipt of

such a proposal, the adjudicating authority (NCLT) is required

to satisfy itself that the resolution plan as approved by CoC

meets the requirements specified in Section 30(2). No more

and no less. This is explicitly spelt out in Section 31 of the I&B

Code, which read thus (as in October 2017):

“31. Approval of resolution plan.­(1) If the Adjudicating Authority is satisfied that the resolution plan as approved by the committee of creditors under sub­section (4) of section 30 meets the requirements as referred to in sub­section(2) of section 30, it shall by order approve the resolution plan which shall be binding on the corporate debtor and its 43

employees, members, creditors, guarantors and other stakeholders involved in the resolution plan.

(2) Where the Adjudicating Authority is satisfied that the resolution plan does not confirm to the requirements referred to in sub­section (1), it may, by an order, reject the resolution plan.

(3) After the order of approval under sub­section (1),­

(a) the moratorium order passed by the Adjudicating Authority under section 14 shall cease to have effect; and

(b) the resolution professional shall forward all records relating to the conduct of the corporate insolvency resolution process and the resolution plan to the Board to be recorded on its database.”

We may also usefully refer to Section 30(2) as applicable at the

relevant time. The same read thus:

“30. Submission 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;

44 (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 objectives

of the Code was to bring the insolvency law in India under a

single, unified umbrella with the object of speeding up the

insolvency process. As regards the process regarding

submission of resolution plan and, in particular, in reference

to Section 30, the Court observed as follows:

“33. Under Section 30, any person who is interested in putting the corporate body back on its feet may submit a resolution plan to the resolution professional, which is prepared on the basis of an information memorandum. This plan must provide for payment of insolvency resolution process costs, management of the affairs of the corporate debtor after approval of the plan, and implementation and supervision of the plan. It is only when such plan is approved by a vote of not less than 75% of the voting share of the financial creditors and the adjudicating authority is satisfied that the plan, as approved, meets the statutory requirements mentioned in Section 30, that it ultimately approves such plan, which is then binding on the corporate debtor as well as its employees, members, creditors, guarantors and other stakeholders. Importantly, and this is a major departure from previous legislation on the subject, the moment the adjudicating authority approves the resolution plan, the moratorium 45

order passed by the authority under Section 14 shall cease to have effect. The scheme of the Code, therefore, is to make an attempt, by divesting the erstwhile management of its powers and vesting it in a professional agency, to continue the business of the corporate body as a going concern until a resolution plan is drawn up, in which event the management is handed over under the plan so that the corporate body is able to pay back its debts and get back on its feet. All this is to be done within a period of 6 months with a maximum extension of another 90 days or else the chopper comes down and the liquidation process begins.” (emphasis supplied)

(emphasis supplied) The Court, however, was not called upon to deal with the

specific issue that is being considered in the present cases

namely, the scope of judicial review by the adjudicatory

authority in relation to the opinion expressed by the CoC on

the proposal for approval of the resolution plan.

23. In Arcelormittal (supra), the Court adverted to the

timelines specified in the Code and the consequences thereof

in paragraphs 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 46

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 of a resolution plan under Section 31. This consequence is provided by Section 33, which makes it clear that when either of these two contingencies occurs, the corporate debtor is required to be liquidated in the manner laid down in Chapter III. Section 12, construed in the light of the object sought to be achieved by the Code, and in the light of the consequence provided by Section 33, therefore, makes it clear that the periods previously mentioned are mandatory and cannot be extended.”

(emphasis supplied) And again, while dealing with the purport of Sections 30, 33

and 61 in paragraph 76, it is observed thus:

“76. ……………………

(viii) Section 30 is an important provision in that a resolution applicant may submit a resolution plan to the Resolution Professional, who is then to examine the said plan to see that it conforms to the requirements of Section 30(2). Once this plan conforms to such requirements, the plan is then to be presented to the Committee of Creditors for its approval under Section 30(3). This can then be approved by the Committee of Creditors by a vote of not less than 66% under 47

Sub­section (4). What is important to note is that the Committee of Creditors shall not approve a resolution plan where the resolution applicant is ineligible under Section 29A, and may require the Resolution Professional to invite a fresh resolution plan where no other resolution plan is available. Once approved by the Committee of Creditors, the resolution plan is to be submitted to the Adjudicating Authority under Section 31 of the Code. It is at this stage that a judicial mind is applied by the Adjudicating Authority to the resolution plan so submitted, who then, after being satisfied that the plan meets (or does not meet) the requirements mentioned in Section 30, may either approve or reject such plan.

(ix) An appeal from an order approving such plan is only on the limited grounds laid down in Section 61(3).

However, an appeal from an order rejecting a resolution plan would also lie under Section 61.

(x) As has been stated hereinbefore, the liquidation process gets initiated under Section 33 if, (1) either no resolution plan is submitted within the time specified under Section 12, or a resolution plan has been rejected by the Adjudicating Authority; (2) where the Resolution Professional, before confirmation of the 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 48

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 amended subsequently w.e.f. 01.01.2018 to mean

the financial creditors who voted against the resolution plan or

abstained from voting for the resolution plan, approved by the

Committee.

25. Admittedly, in the case of the corporate debtor KS&PIPL,

the resolution plan, when it was put to vote in the meeting of

CoC held on 27th October, 2017, could garner approval of only

55.73% of voting share of the financial creditors and even if

the subsequent approval accorded by email (by 10.94%) is

taken into account, it did not fulfill the requisite vote of not 49

less than 75% of voting share of the financial creditors. On the

other hand, the resolution plan was expressly rejected by

15.15% in the CoC meeting and later additionally by 11.82%

by email. Thus, the resolution plan was expressly rejected by

not less than 25% of voting share of the financial creditors. In

such a case, the resolution professional was under no

obligation to submit the resolution plan under Section 30(6) of

the I&B Code to the adjudicating authority. Instead, it was a

case to be proceeded by the adjudicating authority under

Section 33(1) of the I&B Code. Similarly, in the case of

corporate debtor IIL, the resolution plan received approval of

only 66.57% of voting share of the financial creditors and

33.43% voted against the resolution plan. This being the

indisputable position, NCLAT opined that the resolution plan

was deemed to be rejected by the CoC and the concomitant is

to initiate liquidation process concerning the two corporate

debtors.

26. According to the resolution applicant and the

stakeholders supporting the concerned resolution plan in 50

respect of the two corporate debtors, the stipulation in Section

30(4) of the I&B Code as applicable at the relevant time in

October 2017 is only directory and not mandatory. This

argument is founded on the expression “may” occurring in

Section 30(4) of the I&B Code. This argument does not

commend to us. In that, the word “may” is ascribable to the

discretion of the CoC ­ to approve the resolution plan or not to

approve the same. What is significant is the second part of the

said provision, which stipulates the requisite threshold of “not

less than seventy five percent of voting share of the financial

creditors” to treat the resolution plan as duly approved by the

CoC. That stipulation is the quintessence and made

mandatory for approval of the resolution 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 51

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. Chapter­VI of the

regulations deals with general meetings of the committee.

Chapter­VII with matters relating to voting by the committee.

Chapter­VIII with the conduct of corporate insolvency

resolution process and Chapter­X with the resolution plan. As

the issue under consideration is about the conduct of meeting

of CoC for considering the proposed insolvency resolution

plan, we may usefully refer to the dispensation delineated in

Chapter­VI and VII, in particular. Regulation 18 is about the

meetings of the committee to be convened by the resolution 52

professional when he considers necessary or upon the

requisition given by the members of the committee,

representing 33% of the voting rights. Regulation 19 is about

the notice period for convening such a meeting and Regulation

20 is about the service of notice by electronic means.

Regulation 21 is about the contents of the notice for meeting.

Regulation 22 provides for the quorum at the meeting and

Regulation 23 recognises participation of the members of

committee through video conferencing and other audio visual

means, as specified therein. In other words, the members of

the committee need not participate during voting propria

persona or in person but can do so through video conferencing

or other audio or visual means. The conduct of meeting is

governed by Regulation 24 and the method and procedure for

voting during such meeting is predicated in Regulation 25 and

26. Regulation 25 is about voting by the members of the

committee present in the meeting and Regulation 26 is about

the voting by either electronic means or through electronic

voting system.

53

29. Be it noted, these provisions are regarding the conduct of

meetings of the committee generally and including about the

method of voting during such meetings. The specific provision

regarding approval of a resolution plan can be traced to

Regulation 39. Regulation 39, as it was in force at the relevant

time in October 2017, read thus:

“39. Approval of resolution plan.­(1) A resolution applicant shall endeavour to submit a resolution plan prepared in accordance with the Code and these Regulations to the resolution professional, thirty days before expiry of the maximum period permitted under section 12 for the completion of the corporate insolvency resolution process.

(2) The resolution professional shall present all resolution plans that meet the requirements of the Code and these Regulations to the committee for its consideration.

(3) The committee may approve any resolution plan with such modifications as it deems fit.

(4) The resolution professional shall submit the resolution plan approved by the committee to 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 54

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 plan is approved by the Adjudicating Authority, may make an application to the Adjudicating Authority for an order seeking the assistance of the local district administration in implementing the terms of a resolution plan.”

On a conjoint reading of these provisions it is amply clear that

the stipulation is to reckon the percent of “voting share of the

financial creditors”, for the purposes of determining as to

whether the proposed resolution plan has been approved by

the CoC or otherwise. When it comes to the method of voting

and for determining the outcome of voting with regard to other

subjects (other than the approval of the resolution plan),

discussed in the meeting of the CoC, the same is governed by

Regulation 25 as applicable in October 2017. The same read

thus:

55 “25. Voting by the committee.­(1) the actions listed in section 28(1) shall be considered in meetings of the committee.

(2) Any action other than those listed in section 28(1) requiring approval of the committee may be considered in meetings of the committee.

(3) Where all members are present in a meeting, the resolution professional shall take a vote of the members of the committee on any item listed for voting after discussion on the same.

(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.

(5) If all members are not present at a meeting, a vote shall not be taken at such meeting and the resolution professional shall­

(a) circulate the minutes of the meeting by electronic means to all members of the committee within forty­eight hours of the conclusion of the meeting; and

(b) seek a vote on the matters listed for voting in the meeting, by electronic voting system where the voting shall be kept open for twenty four hours from the circulation of the minutes.” (emphasis supplied)

Concededly, Regulations 25 and 39 must be read in light of

Section 30(4) of the I&B Code, concerning the process of

approval of a resolution plan. For that, the “percent of voting 56

share of the financial creditors” approving vis­à­vis dissenting

­ is required to be reckoned. It is not on the basis of members

present and voting as such. At any rate, the approving votes

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 57

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 sub­section (6) of Section 30 or when the

resolution plan has been rejected by the resolution

professional for non­compliance of Section 30(2) of the I&B

Code or also when the resolution plan fails to garner approval

of not less than seventy five percent of voting share of the

financial creditors, as the case may be; and there is no

alternate plan mooted before the expiry of the statutory period.

The second is when a resolution plan duly approved by the

CoC by not less than 75% of voting share of the financial

creditors is submitted before it by the resolution professional

under Section 30(6) of the Code, for its approval.

32. In the present case, we are concerned with a situation

where in both the resolution processes under consideration,

the resolution plan failed to garner support of not less than 58

75% of voting share of the financial creditors. That is the first

category referred to above. In such a situation, the

adjudicating authority can have no other option but to initiate

liquidation process in terms of Section 33 (1) of the I&B Code.

Section 33 of the I&B Code as applicable at the relevant time

in October 2017, read thus:

“33. Initiation of liquidation.­(1) Where the Adjudicating Authority,­

(a) before the expiry of the insolvency resolution process period or the maximum period permitted for completion of the corporate insolvency resolution process under section 12 or the fast track corporate insolvency resolution process under section 56, as the case may be, does not receive a resolution plan under sub­ section (6) of section 30; or

(b) rejects the resolution plan under section 31 for the non­compliance of the requirements specified therein,

It shall­

(i) pass an order requiring the corporate debtor to be liquidated in the manner as laid down in this Chapter;

(ii) issue a public announcement stating that the corporate debtor is in liquidation; and

(iii) require such order to be sent to the authority with which the corporate debtor is registered.

(2) Where the resolution professional, at any time during the corporate insolvency resolution process but before confirmation of resolution plan, intimates the Adjudicating 59

Authority of the decision of the committee of creditors to liquidate the corporate debtor, the Adjudicating Authority shall pass a liquidation order as referred to in sub­clauses (i)

(ii) and (iii) of clause (b) of sub­section (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 sub­clauses

(i), (ii) and (iii) of clause (b) of sub­section (1).

(4) On receipt of an application under sub­section (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 sub­clauses

(i), (ii) and (iii) of clause (b) of sub­section (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 sub­section (5) shall not apply to legal proceedings in relation to such transactions as may be notified by the Central Government in consultation with any financial sector regulator.

(7) The order for liquidation under this section shall be deemed to be a notice of discharge to the officers, employees and workmen of the corporate debtor, except when the business of the corporate debtor is continued during the liquidation process by the liquidator.”

33. As aforesaid, upon receipt of a “rejected” resolution plan

the adjudicating authority (NCLT) is not expected to do 60

anything more; but is obligated to initiate liquidation process

under Section 33(1) of the I&B Code. The legislature has not

endowed the adjudicating authority (NCLT) with the

jurisdiction or authority to analyse or evaluate the commercial

decision of the CoC muchless to enquire into the justness of

the rejection of the resolution plan by the dissenting financial

creditors. From the legislative history and the background in

which the I&B Code has been enacted, it is noticed that a

completely new approach has been adopted for speeding up

the recovery of the debt due from the defaulting companies. In

the new approach, there is a calm period followed by a swift

resolution process to be completed within 270 days (outer

limit) failing which, initiation of liquidation process has been

made inevitable and mandatory. In the earlier regime, the

corporate debtor could indefinitely continue to enjoy the

protection given under Section 22 of Sick Industrial

Companies Act, 1985 or under other such enactments which

has now been forsaken. Besides, the commercial wisdom of

the CoC has been given paramount status without any judicial 61

intervention, for ensuring completion of the stated processes

within the timelines prescribed by the I&B Code. There is an

intrinsic assumption that financial creditors are fully informed

about the viability of the corporate debtor and feasibility of the

proposed resolution plan. They act on the basis of thorough

examination of the proposed resolution plan and assessment

made by their team of experts. The opinion on the subject

matter expressed by them after due deliberations in the CoC

meetings through voting, as per voting shares, is a collective

business decision. The legislature, consciously, has not

provided any ground to challenge the “commercial wisdom” of

the individual financial creditors or their collective decision

before 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 62

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 (legislature, executive or judiciary) into this question. This has been strictly avoided by the Committee. The appropriate disposition of a defaulting firm is a business decision, and only the creditors should make it.” (emphasis supplied)

The report also highlights that having timelines is the essence

of the resolution process. It then refers to the principles

driving the design of the new insolvency bankruptcy resolution

frame work. While dealing with this aspect, it is noted that the

Code would facilitate the assessment of the viability of the

enterprise at a very early stage. The relevant extract of the

report reads thus:

“Principles driving the design 63

The Committee chose the following principles to design the new insolvency and bankruptcy resolution framework:

I. The Code will facilitate the assessment of viability of the enterprise at a very early stage.

(1) The law must explicitly state that the viability of the enterprise is a matter of business, and that matters of business can only be negotiated between creditors and debtor. While viability is assessed as a negotiation between creditors and debtor, the final decision has to be an agreement among creditors who are the financiers willing to bear the loss in the insolvency. (2) The legislature and the courts must control the process of resolution, but not be burdened to make business decisions.

(3) The law must set up a calm period for insolvency resolution where the debtor can negotiate in the assessment of viability without fear of debt recovery enforcement by creditors.

(4) The law must appoint a resolution professional as the manager of the resolution period, so that the creditors can negotiate the assessment of viability with the confidence that the debtors will not take any action to erode the value of the enterprise. The professional will have the power and responsibility to monitor and manage the operations and assets of the enterprise. The professional will manage the resolution process of negotiation to ensure balance of power between the creditors and debtor, and protect the rights of all creditors. The professional will ensure the reduction of asymmetry of information between creditors and debtor in the resolution process.

…………………… IV. The Code will ensure a collective process.

(9) The law must ensure 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. 64

(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 on which the adjudicating authority can reject the

resolution plan is in reference to matters specified in Section

30(2), when the resolution plan does not conform to the stated

requirements. Reverting to Section 30(2), the enquiry to be

done is in respect of whether the resolution plan provides : (i)

the payment of insolvency resolution process costs in a

specified manner in priority to the repayment of other debts of

the corporate debtor, (ii) the repayment of the debts of 65

operational creditors in prescribed manner, (iii) the

management of the affairs of the corporate debtor, (iv) the

implementation and supervision of the resolution plan, (v)

does not contravene any of the provisions of the law for the

time being in force, (vi) conforms to such other requirements

as may be specified by the Board. The Board referred to is

established under Section 188 of the I&B Code. The powers

and functions of the Board have been delineated in Section

196 of the I&B Code. None of the specified functions of the

Board, directly or indirectly, pertain to regulating the manner

in which the financial creditors ought to or ought not to

exercise their commercial wisdom during the voting on the

resolution plan under Section 30(4) of the I&B Code. The

subjective satisfaction of the financial creditors at the time of

voting is bound to be a mixed baggage of variety of factors. To

wit, the feasibility and viability of the proposed resolution plan

and including their perceptions about the general capability of

the resolution applicant to translate the projected plan into a

reality. The resolution applicant may have given projections 66

backed by normative data but still in the opinion of the

dissenting financial creditors, it would not be free from being

speculative. These aspects are completely within the domain of

the financial creditors who are called upon to vote on the

resolution plan under Section 30(4) of the I&B Code.

36. For the same reason, even the jurisdiction of the NCLAT

being in continuation of the proceedings would be

circumscribed in that regard and more particularly on account

of Section 32 of the I&B Code, which envisages that any

appeal from an order approving the resolution plan shall be in

the manner and on the grounds specified in Section 61(3) of

the I&B Code. Section 61(3) of the I&B Code reads thus:

“61. Appeals and Appellate Authority.­(1) Notwithstanding 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;

67 (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

against an “order passed by the adjudicating authority (NCLT)”

– which we will assume may also pertain to recording of the

fact that the proposed resolution plan has been rejected or not

approved by a vote of not less than 75% of voting share of the

financial creditors. Indubitably, the remedy of appeal

including the width of jurisdiction of the appellate authority

and the grounds of appeal, is a creature of statute. The

provisions investing jurisdiction and authority in the NCLT or 68

NCLAT as noticed earlier, has not made the commercial

decision exercised by the CoC of not approving the resolution

plan or rejecting the same, justiciable. This position is

reinforced from the limited grounds specified for instituting an

appeal that too against an order “approving a resolution plan”

under Section 31. First, that the approved resolution plan is in

contravention of the provisions of any law for the time being in

force. Second, there has been material irregularity in exercise

of powers “by the resolution professional” during the corporate

insolvency resolution period. Third, the debts owed to

operational creditors have not been provided for in the

resolution plan in the prescribed manner. Fourth, the

insolvency resolution plan costs have not been provided for

repayment in priority to all other debts. Fifth, the resolution

plan does not comply with any other criteria specified by the

Board. Significantly, the matters or grounds ­ be it under

Section 30(2) or under Section 61(3) of the I&B Code ­ are

regarding testing the validity of the “approved” resolution plan

by the CoC; and not for approving the resolution plan which 69

has been disapproved or deemed to have been rejected by the

CoC in exercise of its business decision.

38. Indubitably, the inquiry in such an appeal would be

limited to the power exercisable by the resolution professional

under Section 30(2) of the I&B Code or, at best, by the

adjudicating authority (NCLT) under Section 31(2) read with

31(1) of the I&B Code. No other inquiry would be permissible.

Further, the jurisdiction bestowed upon the appellate

authority (NCLAT) is also expressly circumscribed. It can

examine the challenge only in relation to the grounds specified

in Section 61(3) of the I&B Code, which is limited to matters

“other than” enquiry into the autonomy or commercial wisdom

of the dissenting financial creditors. Thus, the prescribed

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 70

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 Chapter­III 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 (25% in

October, 2017; and now after the amendment w.e.f.

06.06.2018, 44%). The inevitable outcome of voting by not

less than requisite percent of voting share of financial

creditors to disapprove the proposed resolution plan, de jure,

entails in its deemed rejection.

71

40. Notably, the threshold of voting share of the dissenting

financial creditors for rejecting the resolution plan is way

below the simple majority mark, namely not less than 25%

(and even after amendment w.e.f. 06.06.2018, 44%). Thus, the

scrutiny of the resolution plan is required to pass through the

litmus test of not less than requisite (75% or 66% as may be

applicable) of voting share ­ a strict regime. That means the

resolution plan must appear, to not less than requisite voting

share of the financial creditors, to be an overall credible plan,

capable of achieving timelines specified in the Code generally,

assuring successful revival of the corporate debtor and

disavowing endless speculation.

41. The counsel appearing for the resolution applicant and

the stakeholders supporting the resolution plan of the

concerned corporate debtor, were at pains to persuade us to

take a view that voting by the dissenting financial creditors

suffers from the vice of being unreasonable, irrational,

unintelligible and an abuse of exercise of power. The power

bestowed on the financial creditors to cast their vote under 72 Section 30(4) is coupled with a duty to exercise that power

with utmost care, caution and reason, keeping in mind the

legislative intent and the spirit of the I&B Code ­ fullest

attempt should be made to revive the corporate debtors and

not to mechanically shove them to the brink of liquidation

process, which has the inevitable impact on larger public

interests and the stakeholders in particular, including workers

associated with the company.

42. The argument, though attractive at the first blush, but if

accepted, would require us to re­write the provisions of the

I&B Code. It would also result in doing violence to the

legislative intent of having consciously not stipulated that as a

ground ­ to challenge the commercial wisdom of the minority

(dissenting) financial creditors. Concededly, the process of

resolution plan is necessitated in respect of corporate debtors

in whom their financial creditors have lost hope of recovery

and who have turned into non­performer or a chronic

defaulter. The fact that the concerned corporate debtor was

still able to carry on its business activities does not obligate 73

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 assigned any reason for recording their dissent and 74

therefore, their action is vitiated. As per the provisions

applicable at the relevant time in October 2017, there was no

requirement of recording reasons for the dissent. That

requirement has been introduced by an amendment to the

regulations effected in 2018 w.e.f. 4 th July, 2018. Whether that

amendment is prospective or has retrospective effect is a

matter which will be considered a little later.

44. Suffice it to observe that in the I&B Code and the

regulations framed thereunder as applicable in October 2017,

there was no need for the dissenting financial creditors to

record reasons for disapproving or rejecting a resolution plan.

Further, as aforementioned, there is no provision in the I&B

Code which empowers the adjudicating authority (NCLT) to

oversee the justness of the approach of the dissenting financial

creditors in rejecting the proposed resolution plan or to engage

in judicial review thereof. Concededly, the inquiry by the

resolution professional precedes the consideration of the

resolution plan by the CoC. The resolution professional is not

required to express his opinion on matters within the domain 75

of the financial creditor(s), to approve or reject the resolution

plan, under Section 30(4) of the I&B Code. At best, the

Adjudicating Authority (NCLT) may cause an enquiry into the

“approved” resolution plan on limited grounds referred to in

Section 30(2) read with Section 31(1) of the I&B Code. It

cannot make any other inquiry nor is competent to issue any

direction in relation to the exercise of commercial wisdom of

the financial creditors ­ be it for approving, rejecting or

abstaining, as the case may be. Even the inquiry before the

Appellate Authority (NCLAT) is limited to the grounds under

Section 61(3) of the I&B Code. It does not postulate

jurisdiction to undertake scrutiny of the justness of the

opinion expressed by financial creditors at the time of voting.

To take any other view would enable even the minority

dissenting financial creditors to question the logic or justness

of the commercial opinion expressed by the majority of the

financial creditors albeit by requisite percent of voting share to

approve the resolution plan; and in the process authorize the

adjudicating authority to reject the approved resolution plan 76

upon accepting such a challenge. That is not the scope of

jurisdiction vested 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 77

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 June, 2018 to Section 30(4) of the I&B

Code in particular. According to them, the said amendment

ought to be given retrospective effect and in any case, being

retroactive in nature, ought to govern the proceedings before

the NCLAT where the appeal was pending for consideration.

For considering this submission, we may advert to the

Insolvency and Bankruptcy Code (Amendment) Act, 2017

(No.8 of 2018) which is deemed to have come into force on the

23rd day of November, 2017. Section 6 of this Act purports to

substitute Section 30(4) of the principal Act. The amended

sub­section (4) reads thus:

“6. In section 30 of the principal Act, for sub­section (4), the following sub­section shall be substituted, namely:­ (4) The committee of creditors may approve a resolution plan by a vote of not less than seventy­five per cent. of voting share of the financial creditors, after considering its feasibility and viability, and such other requirements as may be specified by the Board:

Provided that the committee of creditors shall not approve a resolution plan, submitted before the commencement of the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2017, where the resolution applicant is ineligible under section 29A and may require the 78

resolution professional to invite a fresh resolution plan where no other resolution plan is available with it:

Provided further that where the resolution applicant referred to in the first proviso is ineligible under clause (c) of section 29A, the resolution applicant shall be allowed by the committee of creditors such period, not exceeding thirty days, to make payment of overdue amounts in accordance with the proviso to clause (c) of section 29A:

Provided also that nothing in the second proviso shall be construed as extension of period for the purposes of the proviso to sub­section (3) of section 12, and the corporate insolvency resolution process shall be completed within the period specified in that sub­section.”.

47. The change brought about by this amendment is

insertion of words “after considering its feasibility and

viability, and such other requirements as may be specified by

the Board”. In addition, three provisos have been added to

sub­section (4). For considering the issue on hand, the three

provisos are not relevant. As regards the insertion of the above

quoted words in sub­section (4), that 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 79

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 resolution plan. No more and no

less. Indubitably, the legislature has consciously not provided

for a ground to challenge the justness of the “commercial

decision” expressed by the financial creditors – be it to approve

or reject the resolution plan. The opinion so expressed by

voting is non­justiciable. Further, in the present cases, there 80

is nothing to indicate as to which other requirements specified

by the Board at the relevant time have not been fulfilled by the

dissenting financial creditors. As noted earlier, the Board

established under Section 188 of the I&B Code can perform

powers and functions specified in Section 196 of the I&B Code.

That does not empower the Board to specify requirements for

exercising commercial decisions by the financial creditors in

the matters of approval of the resolution plan or liquidation

process. Viewed thus, the amendment under consideration

does not take the matter any further.

49. We may not be understood to have expressed any opinion

either way about the effect of the three provisos introduced by

the same amendment to Section 30(4) ­ as to whether it would

have retrospective or retroactive effect. That question does not

arise for consideration in these appeals. Our discussion is

restricted to the efficacy of the amendment to main provision

viz., Section 30(4), whereby the above quoted words (“after

considering feasibility and viability, and such other 81

requirements as may be specified by the Board”) have been

inserted.

50. The learned counsel for the resolution applicant and

other stakeholders supporting the resolution plan of the

concerned creditors, next relied upon the amendment to

Section 30(4) which has come into force w.e.f. 6 th day of June,

2018 vide the Insolvency and Bankruptcy Code (Second

Amendment) Act, 2018 (No.8 of 2018). Vide section 23(iii)(a) of

the said amendment Act, the word “seventy­five” in sub­

section (4) of Section 30 has been substituted by the word

“sixty­six”. Taking clue from this amendment, it was argued

that since the amendment substitutes the threshold

requirement of 75% to 66% and since the same has been

brought into force when appeals were pending, the NCLAT was

obliged to consider its effect on the present cases. Further,

being substitution, it must be assumed that the amended

provision was always there from the beginning of the Code.

51. We are not impressed by this submission. In our opinion,

by this amendment, a new norm and qualifying standard for 82

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 6­06­2018.

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 83

for rejection of the resolution plan which, it felt, should be

increased to 44%. It may be useful to reproduce paragraph 11

of the said report dealing with voting share threshold for

decisions of the CoC, which reads thus:

“11.VOTING SHARE THRESHOLD FOR DECISIONS OF THE COC

11.1 Section 21(8) of the Code provides that all decisions of the CoC shall be taken by a vote of not less than 75 percent of the voting share of the financial creditors. Regulation 25(5) read with regulation 26 of the CIRP Regulations provides that if all members of the CoC are not present, an option to vote through electronic means must be provided.

11.2 It was represented to the Committee that the high threshold of 75 percent of voting share of financial creditors for decisions of the CoC was proving to be a road­block in the resolution process. Effectively, as a result of the high threshold, blocking the resolution plan and other decisions of the CoC, was easier than approving these.

11.3 The Committee considered the fact that, so far, various benches of the NCLT have passed liquidation orders in 30 cases. 76 Out of these 30 cases, only nine cases went into liquidation on account of rejection by the CoC. Further, only in one case, a liquidation order was passed owing to lack of consensus of 75 percent financial creditors for approval of the resolution plan. 77 In respect of the remaining eight cases, the plan was rejected by an overwhelming majority of voting share above 80 percent. Thus, empirical evidence suggests that the apprehension that companies are being put into liquidation by minority creditors is pre­mature.

The Committee reiterated that the objective of the Code is to respect the commercial wisdom of the CoC. 84

11.4 The Committee noted the voting thresholds across other statutes and guidelines that deal/have dealt with rehabilitation of companies as follows:

(a) Section 230(6) of the CA 2013 which deals with power to compromise or make arrangements with creditors and members provides that any compromise or arrangement must be approved by 75 percent in value of creditors or class of creditors or members or class of members, as the case maybe.

(b) Section 262 of the CA 201378 provided for a scheme of rehabilitation which required approval by (i) secured creditors representing 75 percent in value of the debts owed by the company to such creditors; and (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 borrower) unless exercise of 85

such right was agreed upon by secured creditors representing not less than 60 percent (reduced from 75 percent) 81 in value of the amount outstanding as on a record date and such action was binding on all the secured creditors.

11.5 The Committee also noted that globally, bankruptcy laws prescribe different voting thresholds for decisions of the CoC. In USA, approval of a plan requires 66 percent or more voting share in value and 50 percent or more voting share in number for each class of creditors.82 The position is similar in Canada, however, such requirement applies to each class of unsecured creditors.83 In the UK, approval of a plan under administration requires a simple majority in value of the creditors present and voting. While such threshold is higher in Singapore as the requirement therein is to obtain 75 percent or more of voting share by value and more than 50 percent voting share in number of creditors present and voting, for approval of the plan.84 The Committee was of the view a higher threshold with the present and voting requirement, or a lower threshold sans the present and voting requirement, may be adopted.

11.6 After due deliberation and factoring in the experience of past restructuring laws in India and international best practices, the Committee agreed that to further the stated object of the Code i.e. to promote resolution, the voting share for approval of resolution plan and other critical decisions may be reduced from 75 percent to 66 percent or more of the voting share of the financial creditors. In addition to approval of the resolution plan under section 30(4), other critical decisions are extension of the CIRP beyond 180 days under section 12(2), replacement or appointment of RP under sections 22(2) and 27(2), and passing a resolution for liquidation under section 33(2) of the Code. Further, for approval of the other routine decisions for continuing 86

the corporate debtor as going concern by the IRP/RP, the voting share threshold may be reduced to 51 percent or more of the voting share of the financial creditors.”

(emphasis in para 11.3 supplied)

53. Significantly, the report mentions that the empirical

record suggests that the apprehension regarding companies

are being put into liquidation by minority creditors is pre­

mature and further that the objective of the Code is to respect

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. 87

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 consists of two steps:

first, the old rule is made to cease to exist and, next, the new rule is brought into existence in its place. The rule is that when a subsequent Act amends an earlier one in such a way as to incorporate itself, or a part of itself, into the earlier, then the earlier Act must thereafter be read and construed as if the altered words had been written into the earlier Act with pen and ink and the old words scored out so that thereafter there is no need to refer to the amending Act at all. No doubt, in certain situations, the Court having regard to the purport and object sought to be achieved by the Legislature may construe the word "substitution" as an "amendment" having a prospective effect. Therefore, we do not think that it is a universal rule that the word ‘substitution’ necessarily or always connotes two severable steps, that is to say, one of repeal and another of a fresh enactment even if it implies two steps. However, the aforesaid general meaning is to be given effect to, unless it is found that legislature intended otherwise. Insofar as present case is concerned, as discussed hereinafter, the legislative intent was also to give effect to the amended provision even in respect of those incumbents who were in service as on September 01, 2016.”

(emphasis supplied) 88

The Court has restated the position that there can be no hard

and fast rule merely because of the usage of expression

“substituted” in the amendment Act. For, in certain situations

like the case on hand, the amendment will have prospective

effect as it is not intended to reverse or nullify the decisions

already taken by the CoC of the concerned corporate debtors

before coming into force of the amended provision.

55. This Court in Thirumalai Chemicals Limited Vs.

Union of India and Ors.,24 in paragraph 23, observed that it

is trite law that every statute is prospective unless it is

expressly or by necessary implication made to have

retrospective operation. This proposition has been reiterated in

Purbanchal Cables & Conductors (P) Ltd. Vs. Assam SEB

and Anr.25 in paragraphs 51, which reads thus:

“51. There is no doubt about the fact that the Act is a substantive law as vested rights of entitlement to a higher rate of interest in case of delayed payment accrues in favour of the supplier and a corresponding liability is imposed on the buyer. This Court, time and again, has observed that any substantive law shall operate prospectively unless retrospective operation is clearly made out in the

24 (2011) 6 SCC 739 25 (2012) 7 SCC 462 89

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.26 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. Yamashita­Shinnihon 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 the various decisions and this legal position was conceded by the counsel for the parties. In any case, we shall refer to few judgments containing this dicta, a little later.” (emphasis supplied)

Once again, in Vijayalakshmi Rice Mills, New Contractors

Co. and Ors. Vs. State of Andhra Pradesh27, in paragraph

5, the Court observed thus:

26 (2015) 1 SCC 1 27 (1976) 3 SCC 37 90

“5. Mr Nariman appearing on behalf of the appellants has laid great emphasis on the word “substituted” occurring in clause 2 of the Rice (Andhra Pradesh) Price Control (Third Amendment) Order, 1964 and has urged that the claim of the appellants cannot be validly ignored. Elaborating his submission, counsel has contended that as the prices fixed by the Government are meant for the entire season, the appellants have to be paid at the controlled price as fixed vide the Rice (Andhra Pradesh) Price Control (Third Amendment) Order, 1964, regardless of the dates on which the supplies were made. We cannot accede to this contention. It is no doubt true that the literal meaning of the word “substitute” is “to replace” but the question before us is from which date the substitution or replacement of the new schedule took effect. There is no deeming clause or some such provision in the Rice (Andhra Pradesh) Price Control (Third Amendment) Order, 1964 to indicate that it was intended to have a retrospective effect. It is a well recognized rule of interpretation that in the absence of express words or appropriate language from which retrospectivity may be inferred, a notification takes effect from the date it is issued and not from any prior date. The principle is also well settled that statutes should not be construed so as to create new disabilities or obligations or impose new duties in respect of transactions which were complete at the time of the amending Act came into force. See Nani Gopal Mitra v. State of Bihar1.” (emphasis supplied)

56. As regards the decision in B.K. Educational (supra), the

Court was called upon to consider the question as to whether

the Limitation Act, 1963 will apply to applications that are

made under Section 7 and/or Section 9 of the Code on and

from its commencement on 01­12­2016 till 06­06­2018. That 91

question was examined in the context of Section 238­A

inserted in the I&B Code by the self­same amendment Act of

2018. The Court after adverting to the contents of the report of

the Insolvency Law Committee of March, 2018 and other

provisions of the Code and other enactments, opined that

Section 238­A 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 92

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

thought was an over­board interpretation of Section 14. On

that reasoning the Court concluded that the amendment of

Section 14 had retrospective effect.

58. In the present case, however, the amendment under

consideration pertaining to Section 30(4), is to modify the

voting share threshold for decisions of the CoC and cannot be

treated as clarificatory in nature. It changes the qualifying

standards for reckoning the decision of the CoC concerning

the process of approval of a resolution plan. The

rights/obligations crystallized between the parties and, in

particular, the dissenting financial creditors in October 2017,

in terms of the governing provisions can be divested or undone 93

only by a law made in that behalf by the legislature. There is

no indication either in the report of the Committee or in the

Amendment Act of 2018 that the legislature intended to undo

the decisions of the CoC already taken prior to 6 th day of June,

2018. It is not possible to fathom how the provisions of the

amendment Act 2018, reducing the threshold percent of voting

share can be perceived as declaratory or clarificatory in

nature. In such a situation, the NCLAT could not have

examined the case on the basis of the amended provision. For

the same reason, the NCLT could not have adopted a different

approach in these matters. Hence, no fault can be found with

the impugned decision of the NCLAT.

59. In our view, no other contention raised to support the

resolution plan of the concerned corporate debtors would be of

any avail. Even so, we may advert to the argument regarding

the effect of amendment of Regulation 39 which has come into

force with effect from 4th July, 2018. Prior to that amendment,

Regulation 39(3) merely provided that the Committee may 94

approve any resolution plan with such modifications as it

deems fit. This was amended vide Notification dated 3rd July,

2018 and the substituted Regulation 39(3), now reads thus:

“39. Approval of resolution plan.­

xxx xxx xxx

(3) The committee shall evaluate the resolution plans received under sub­regulation (1) strictly as per the evaluation matrix to identify the best resolution plan and may approve it with such modification as it deems fit:

PROVIDED that the committee shall record the reasons for approving or rejecting a resolution plan.”

60. In the first place, amendment to regulation cannot have

retrospective 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 95

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, non­recording 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

on those grounds. However, if the opposition to the proposed

resolution plan is purely a commercial or business decision,

the same, being non­justiciable, is not open to challenge

before the Adjudicating Authority (NCLT) or for that matter the

Appellate Authority (NCLAT). If so, non­recording of any

reason for taking such commercial decision will be of no avail.

In the present case, admittedly, the dissenting financial

creditors have rejected the resolution plan in exercise of 96

business/commercial decision and not because of non­

compliance of the grounds specified in Section 30(2) or Section

61(3), as such. Resultantly, the amended regulation pressed

into service, will be of no avail.

62. Relying on the dictum in Mardia Chemicals (supra), in

particular paragraph 45, it was argued that even in regard to

the option exercisable by the financial creditors under Section

30(4), the requirement of giving reasons for approval or

disapproval of the proposed resolution plan must be read into

it. In that case, the Court had considered the mechanism

specified in Section 13 of the Securitisation and

Reconstruction of Financial Assets and Enforcement of

Security Interest Act, 2002, which provided for giving a notice

to the borrower and upon receipt of such notice the borrower

could raise objections as to why the proposed action of the

secured creditor was uncalled for. In that context, this Court

in paragraph 45, observed thus:

“45. In the background we have indicated above, we may consider as to what forums or remedies are available to the 97

borrower to ventilate his grievance. The purpose of serving a notice upon the borrower under sub­section (2) of Section 13 of the Act is, that a reply may be submitted by the borrower explaining the reasons as to why measures may or may not be taken under sub­section (4) of Section 13 in case of non­compliance with notice within 60 days. The creditor must apply its mind to the objections raised in reply to such notice and an internal mechanism must be particularly evolved to consider such objections raised in the reply to the notice. There may be some meaningful consideration of the objections raised rather than to ritually reject them and proceed to take drastic measures under sub­section (4) of Section 13 of the Act. Once such a duty is envisaged on the part of the creditor it would only be conducive to the principles of fairness 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 sub­section (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. But communication of reasons not to accept the objections of the borrower, would certainly be for the purpose of his knowledge which would be a step forward towards his right to know as to why his objections have not been accepted by the secured creditor who intends to resort 98

to harsh steps of taking over the management/business of viz. secured assets without intervention of the court. Such a person in respect of whom steps under Section 13(4) of the Act are likely to be taken cannot be denied the right to know the reasons of non­acceptance and of his objections. It is true, as per the provisions under the Act, he may not be entitled to challenge the reasons communicated or the likely action of the secured creditor at that point of time unless his right to approach the Debts Recovery Tribunal as provided under Section 17 of the Act matures on any measure having been taken under sub­section (4) of Section 13 of the Act.” (emphasis supplied)

In the present case, however, we are concerned with the

provisions of I&B Code dealing with the resolution process.

The dispensation provided in the I&B Code is entirely different.

In terms of Section 30 of the I&B Code, the decision is taken

collectively after due negotiations between the financial

creditors who are constituents of the CoC and they express

their opinion on the proposed resolution plan in the form of

votes, as per their voting share. In the meeting of CoC, the

proposed resolution plan is placed for discussion and after full

interaction in the presence of all concerned and the resolution

professional, the constituents of the CoC finally proceed to

exercise their option (business/commercial decision) to 99

approve or not to approve the proposed resolution plan. In

such a case, non­recording of reasons would not per se vitiate

the collective decision of the financial creditors. The legislature

has not envisaged challenge to the “commercial/business

decision” of the financial creditors taken collectively or for

that matter their individual opinion, as the case may be, on

this count.

63. It was then contended that NCLAT committed manifest

error in not calling upon the dissenting financial creditors to

respond to the applications filed in the concerned appeals

pending before it, including with a prayer to allow the

resolution applicant to revise the resolution plan. We find no

merits in this submission. The 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 100

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 voting share of the

financial creditors and yet the benefit of the amended

provision could not be availed, as it came only during the

pendency of the appeal before the NCLAT. The submission is

that this Court may set aside the order passed by the Tribunal 101

and relegate the parties in both the cases, before the NCLT for

considering the proceedings afresh in light of the amended

provision reducing the threshold requirement of percent of

voting share of financial creditors to 66%. We are afraid, it is

not possible for us to exercise powers under Article 142 of the

Constitution which will result in issuing directions in the teeth

of the provisions as applicable to the cases on hand. We,

therefore, decline to accede to this request. Having answered

the core issues and to avoid prolixity, we do not wish to dilate

on the exposition in other reported decisions relied upon by

the counsel.

66. As a result, we hold that the NCLAT has justly concluded

in the impugned decision that the resolution plan of the

concerned corporate debtor(s) has not been approved by

requisite percent of voting share of the financial creditors; and

in absence of any alternative resolution plan presented within

the statutory period of 270 days, the inevitable sequel is to

initiate liquidation process under Section 33 of the Code. That

view is unexceptional. Resultantly, the appeals must fail. 102

67. In view of the above, the appeals are dismissed. The

companion applications also stand dismissed. No order as to

costs.

…………………………..….J. (A.M. Khanwilkar)

…………………………..….J. (Ajay Rastogi) New Delhi;

February 5, 2019.