Simultaneous e-voting on resolution plan by CoC, financial creditors in class contrary to IBC, Insolvency Regulations: NCLAT

The National Company Law Appellate Tribunal (NCLAT) recently set aside an order of the National Company Law Tribunal (NCLT) Allahabad Bench on the ground that e-voting on a Resolution Plan by the financial creditors and the Committee of Creditors (CoC) took place simultaneously [Harjeet Kaur v. Mr. Swami Deen Gupta, Resolution Professional, Piyush Shelters India Private Limited & Ors]..A Bench of Chairman Justice Ashok Bhushan, Judicial Member Justice Jarat Kumar Jain and Technical Member Dr Alok Srivastava held that if the voting procedure followed was not in consonance with the Insolvency and Bankruptcy Code, 2016, the approval of a Resolution Plan would have to be set aside..In the instant case, the appellants challenged the approval of the Resolution Plan on the ground that the voting on the same was not in accordance with the provisions of the Code. It was also urged, amongst other grounds, that the Resolution Plan discriminated between homebuyers who filed their claims within time and those who had filed their claims belatedly.The respondents, on the other hand, claimed that the homebuyers did not have any locus to challenge the Resolution Plan, as it had been approved by the CoC, which includes real estate allottees being creditors in class.It was also contended that the appellants had failed to show any material irregularity with regard to the Resolution Plan. Further, it was argued that the commercial wisdom of the CoC was not subject to judicial review..The NCLAT rejected the contention that the homebuyers would have no locus to challenge the approval of the Resolution Plan. It held that homebuyers/allottees who are financial creditors in class but whose claims have not been accepted, are interested parties who have a stake in the successful resolution of the corporate debtor. Therefore, they are entitled to prefer appeals.It was also held that a suspended director of the former corporate debtor would have an interest in the successful resolution of the corporate debtor with which he was earlier connected.Another finding of the NCLAT was that the voting procedure adopted was in contravention of the provisions of the Code. In the instant case, the e-voting on the proposed Resolution Plan by the financial creditors in class was held simultaneously with the e-voting by the members of the CoC. Furthermore, the authorised representative of the homebuyers was informed by the Resolution Professional of the vote hardly 25.5 hours in advance before the voting took place. No separate voting was conducted for the homebuyers..The NCLAT held that the aforesaid procedure was contrary to Regulation 19 of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016, which stipulates that notice of the CoC meeting shall be given at least five days in advance. It was also held that sub-regulation (9) of Regulation 16A was not followed. This provision requires the authorized representative to circulate the agenda and give voting instructions to the creditors in class he represents at least twenty hours in advance, and to keep the voting window for creditors in class open for at least twelve hours. Further, the procedure adopted was contrary to sub-sections 3 and 4 of Section 25A of the Code, which stipulates that the views of financial creditors in class should be sought in an appropriate manner by the authorized representative prior to the meeting of the CoC. The NCLAT held that even though it was not questioning the commercial wisdom of the CoC, when the voting procedure followed was not in consonance with the Code, the approval of the Resolution Plan would have to be set aside.Moreover, it was held that discrimination between homebuyers on the basis of delay in filing of their claim was contrary to the Code, particularly when 53% of the homebuyers were being left out..On these grounds, among others, the NCLAT set aside the order passed by the National Company Law Tribunal (NCLT) Allahabad which had approved the Resolution Plan..[Read judgment]