66% votes required for resolution plans submitted but not approved before IBC Ordinance: NCLAT

The NCLAT has ruled that resolution plans that had not been approved till the time IBC (Amendment) Ordinance, 2018 was introduced, will require the lowered voting of 66% as opposed to 75%.

The appeal before the NCLAT was against an NCLT order of June 2018 in the case of Alok Industries. Alok Industries, which was put into insolvency resolution process in July 2017, received only one resolution plan from the RIL-JM Financial consortium by the 270-day deadline. When put to vote, the plan received only 70% approval from the Committee of Creditors. At the time, 75% was required to approve a resolution plan. Accordingly, a liquidation application was moved at NCLT by the resolution professional. However, this was opposed by ‘Alok Employees Benefit and Welfare Trust & Anr.’ at the NCLT.

While the liquidation application was pending at the NCLT, the Ordinance was introduced in June 2018,  which lowered the approval threshold to 66%. As a result of this, the NCLT called for a fresh round of voting and the CoC this time voted with 72% majority. The NCLT then dismissed the liquidation application and asked the resolution professional to submit the resolution application.

Sicom Ltd, one of the dissenting financial creditors, opposed this decision of the NCLT to dismiss the liquidation application and for applying the Ordinance retrospectively. Sicom argued that such retrospective application is against well-settled principles of law; that a legislation is deemed to be prospective unless made retrospective, either expressly or by necessary intention.

The NCLAT observed the language of the amended Section 30(4) to the rule to be otherwise. The NCLAT particularly noted the new proviso to Section 30(4). The new proviso reads as,

“Provided also that the eligibility criteria in section 29A as amended by the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2018 shall apply to the resolution applicant who has not submitted resolution plan as on the date of commencement of the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2018“

The NCLAT then noted, “From bare perusal of amended sub-section (4) of Section 30 particularly proviso therein, it will be apparent that though amended subsection (4) of Section 30 came into force from 6th June 2018, it is applicable to all ‘Resolution Plans’ which were not approved by the ‘Committee of Creditors’ or by the Adjudicating Authority. “

The NCLT order which allowed re-voting to be conducted was therefore upheld by the NCLAT. The NCLAT found that neither was the plan approved by the Committee of Creditors nor was there any allegation of Section 29A ineligibility. It, therefore, found the case fit to be considered for re-voting.

Going by the reading of the NCLAT judgment, its interpretation of the said proviso may be erroneous for more than one reason. A bare reading of the proviso suggests that it applies only for the purpose of determining Section 29A ineligibility, and further only for resolution applicants that have not ‘submitted’ their resolution plans. Effectively, what this proviso is saying is that resolution applicants who have not submitted resolution plans before the date of the Ordinance will be governed by the amended eligibility criteria under Section 29A.

The NCLAT has, however, interpreted this provision to extend its application to ‘all plans’ that were submitted but not ‘approved’, ignoring the fact that the proviso was inserted for the purpose of determining 29A eligibility and not voting thresholds.

Ankur Kashyap appeared for the appellants, Sicom Ltd. Senior Counsels Abhishek Manu Singhvi and Ramji Srinivasan appeared for the resolution applicant (RIL-JM).  Senior Advocates Arun Kathpalia appeared for the intervenor, Alok Employees Benefit and Welfare Trust. Senior Counsel Sudipto Sarkar appeared for creditors committee.

(Read the judgment)