A fresh debate may arise on the interpretation of the Insolvency and Bankruptcy Code (IBC) after orders by two separate benches of the National Company Law Tribunal (NCLT) expressed different views on the validity of a resolution plan not approved by at least 75% of the lenders. The Hyderabad bench of the NCLT, in an insolvency petition against Kamineni Steel & Power India, allowed a resolution plan approved by 66.67% of its committee of creditors (CoC). However, in another recent judgment in Innoventive Industries’ insolvency case, the Mumbai bench rejected a resolution plan because it did not have the requisite approval of 75% of the CoC. According to Section 30 (4) of the IBC, the CoC may approve a resolution plan by a vote of “not less than 75%” of voting share of the financial creditors.
However, the Hyderabad NCLT said in its order that Section 30 (4) does not say whether such percentage is out of the total voting share of the financial creditors or those present during meetings of the CoC. “Since IBC is a new code and still evolving, the above percentage has to be read with various circulars issued by the Reserve Bank of India (RBI),” the order said. The Hyderabad order quoted a Reserve Bank of India (RBI) notification that decisions agreed upon by at least 60% of banks by value and 50% by number in the joint lenders’ forum (JLF) would be binding on all lenders of the consortium. “Though I&B Code 2016 is a different enactment, the intent and spirit is similar to go by the decision of majority of lending banks,” the Kamineni Steel order said.
Meanwhile, the Mumbai NCLT in its order on November 23 said IBC has stated that any decision that has been taken by the CoC shall be a resolution with 75% voting shares of the creditors’ committee. The Innoventive order said in Section 21 (8) of the code, it has been mandated that all decisions of the CoC shall be taken by a vote of not less than 75% of the financial creditors. “Can there be anything clearer than this?” the Mumbai bench asked, adding that the bench cannot “put its neck into” it to say that approval of the CoC with less than 75% amounts to approval of the resolution plan.
Passed by Parliament last year, the insolvency law aims to make corporate defaulters accountable and assist banks in recovering their unpaid dues. Once cases are admitted by the NCLT, lenders to the companies need to set up a committee that will come up with a plan for resolution. If that cannot be done in a period of 180 days, the period can be extended to 270 days, after which the borrowing entity will go into liquidation.