K. SASHIDHAR versus INDIAN OVERSEAS BANK & ORS.

[2019] 3 S.C.R. 845

K. SASHIDHAR

INDIAN OVERSEAS BANK & ORS.

(Civil Appeal No.10673 of 2018)

FEBRUARY 5, 2019

[A.M. KHANWILKAR AND AJAY RASTOGI, JJ.]

Insolvency and Bankruptcy Code, 2016:

s. 30(2) and (4), 31, 33 and 61(3) – Corporate InsolvencyResolution Process (CIRP) – Resolution plan rejected by impugnedorder on the ground that the plan did not garner support of not lessthan 75% of voting share of financial creditors constitutingCommittee of Creditors (COC) – On appeal, held: Upon receipt ofa “rejected” resolution plan, the adjudicating authority (NCLT) isobligated to initiate liquidation process u/s. 33(1) – It does not haveauthority to analyse or evaluate the commercial decision of the CoCor to enquire into the justness of the rejection of the resolution planby the dissenting financial creditors – The legislature, consciously,has not provided any ground to challenge the “commercial wisdom”of the individual financial creditors or their collective decisionbefore the adjudicating authority – The discretion of the adjudicatingauthority (NCLT) is circumscribed by Section 31 limited to scrutinyof the resolution plan “as approved” by the requisite percent ofvoting share of financial creditors – The provisions investingjurisdiction and authority in the NCLT or NCLAT has not made thecommercial decision exercised by the CoC of not approving theresolution plan or rejecting the same, justiciable – The matters orgrounds u/s. 30(2) or u/s. 61(3) are regarding testing the validity ofthe “approved” resolution plan by the CoC and not for approvingthe resolution plan which has been disapproved or deemed to havebeen rejected by the CoC in exercise of its business decision –Therefore, neither the adjudicating authority (NCLT) nor theAppellate Authority (NCLAT) has been endowed with the jurisdictionto reverse the commercial wisdom of the dissenting financialcreditors – Since none of the grounds available under Section 30(2)or Section 61(3) of the I&B Code are attracted in the fact situationof the present case, the Adjudicating Authority (NCLT) as well as

CDE

Athe Appellate Authority (NCLAT) had no other option but to recordthat the proposed resolution plan stood rejected – Introduction ofnew norm and qualifying standard for approval of resolution planin the amendment Act (reducing the threshold requirement of percentof voting share of financial creditors to 66%) will have prospectiveoperation – NCLAT could not have examined the case on the basisBof the amended provision – Supreme Court in exercise of powers u/Article 142 of the Constitution cannot set aside the order passed bythe Tribunal and relegate the parties in both the cases, before theNCLT for considering the proceedings afresh in light of the amendedprovision – NCLAT has justly concluded that the resolution planChas not been approved by requisite percent of voting share of thefinancial creditors and in absence of any alternative resolution planpresented within the statutory period of 270 days, the inevitablesequel is to initiate liquidation process u/s. 33 – Insolvency andBankruptcy Board of India (Insolvency Resolution Process forCorporate Persons) Regulations, 2016 – Regs. 25 and 39 –DInsolvency and Bankruptcy Code (Amendment) Act, 2017 –Insolvency and Bankruptcy Code (Second Amendment) Act, 2018 –Constitution of India – Art. 142.

Dismissing the appeals, the Court

EHELD: 1. The resolution plan concerning both the corporatedebtors, namely KS&PIPL and IIL was considered by theconcerned Committee of Creditors (CoC) in October 2017, andwas approved by less than 75% of voting share of the financialcreditors. The inevitable consequences thereof are to treat theproposed resolution plan as disapproved or deemed to beFrejected by the dissenting financial creditors. The expression‘dissenting financial creditors’, is defined in Regulation 2(1)(f) ofThe Insolvency and Bankruptcy Board of India (InsolvencyResolution Process for Corporate Persons) Regulations, 2016,to mean the financial creditors who voted against the resolutionGplan approved by the Committee. This definition came to beamended subsequently w.e.f. 01.01.2018 to mean the financialcreditors who voted against the resolution plan or abstained fromvoting for the resolution plan, approved by the Committee.[Para 24][883-F-H]

2. In the case of the corporate debtor KS&PIPL, theresolution plan, when it was put to vote in the meeting of CoCheld on 27[th] October, 2017, could garner approval of only 55.73%of voting share of the financial creditors and even if thesubsequent approval accorded by email (by 10.94%) is taken intoaccount, it did not fulfill the requisite vote of not less than 75%of voting share of the financial creditors. On the other hand, theresolution plan was expressly rejected by 15.15% in the CoCmeeting and later additionally by 11.82% by email. Thus, theresolution plan was expressly rejected by not less than 25% ofvoting share of the financial creditors. In such case, theresolution professional was under no obligation to submit theresolution plan under Section 30(6) of the Insolvency andBankruptcy Code, 2016 (I&B Code) to the adjudicating authority.Instead, it was case to be proceeded by the adjudicating authorityunder Section 33(1) of the I&B Code. Similarly, in the case ofcorporate debtor IIL, the resolution plan received approval ofonly 66.57% of voting share of the financial creditors and 33.43%voted against the resolution plan. This being the indisputableposition, NCLAT opined that the resolution plan was deemed tobe rejected by the CoC and the concomitant is to initiateliquidation process concerning the two corporate debtors.[Para 25][883-A-D]

3. Regulations 25 and 39 must be read in the light of Section30(4) of the I&B Code, concerning the process of approval of aresolution plan. For that, the “percent of voting share of thefinancial creditors” approving vis-à-vis dissenting - is requiredto be reckoned. It is not on the basis of members present andvoting as such. At any rate, the approving votes must fulfill thethreshold percent of voting share of the financial creditors.Keeping this clear distinction in mind, it must follow that theresolution plan concerning the respective corporate debtors,namely, KS&PIPL and IIL, is deemed to have been rejected asit had failed to muster the approval of requisite threshold votes,of not less than 75% of voting share of the financial creditors. Itis not possible to countenance any other construction orinterpretation, which may run contrary to what has been notedherein before. [Para 29][886-G-H; 887-A, B]

A4. Thus understood, no fault can be found with the NCLATfor having recorded the fact that the proposed resolution plan inrespect of both the corporate debtors was approved by vote of“less than 75%” of voting share of the financial creditors ordeemed to have been rejected. In that event, the inevitablecorollary is to initiate liquidation process relating to theBconcerned corporate debtor, as per Section 33 of the I&B Code.[Para 30][887-C]

5. Upon receipt of “rejected” resolution plan theadjudicating authority (NCLT) is not expected to do anythingmore; but is obligated to initiate liquidation process underCSection 33(1) of the I&B Code. The legislature has not endowedthe adjudicating authority (NCLT) with the jurisdiction orauthority to analyse or evaluate the commercial decisionof the CoC muchless to enquire into the justness of the rejectionof the resolution plan by the dissenting financial creditors.D[Para 33][889-D, E]

6. From the legislative history and the background in whichthe I&B Code has been enacted, it is noticed that completelynew approach has been adopted for speeding up the recovery ofthe debt due from the defaulting companies. In the new approach,Ethere is calm period followed by swift resolution process tobe completed within 270 days (outer limit) failing which, initiationof liquidation process has been made inevitable and mandatory.In the earlier regime, the corporate debtor could indefinitelycontinue to enjoy the protection given under Section 22 of SickIndustrial Companies Act, 1985 or under other such enactmentsFwhich has now been forsaken. Besides, the commercial wisdomof the CoC has been given paramount status without any judicialintervention, for ensuring completion of the stated processeswithin the timelines prescribed by the I&B Code. There is anintrinsic assumption that financial creditors are fully informedGabout the viability of the corporate debtor and feasibility of theproposed resolution plan. They act on the basis of thoroughexamination of the proposed resolution plan and assessment madeby their team of experts. The opinion on the subject matterexpressed by them after due deliberations in the CoC meetingsthrough voting, as per voting shares, is collective businessH

decision. The legislature, consciously, has not provided anyground to challenge the “commercial wisdom” of theindividual financial creditors or their collective decisionbefore the adjudicating authority. That is made non-justiciable.[Para 33][889-E-H; 890-A, B]

7. In the report of the Bankruptcy Law Reforms Committeeof November 2015, primacy has been given to the CoC to evaluatethe various possibilities and make decision.The report alsohighlights that having timelines is the essence of theresolution process. It then refers to the principles driving thedesign of the new insolvency bankruptcy resolution frame work.[Para 34][890-B, G]

8. The discretion of the adjudicating authority (NCLT) iscircumscribed by Section 31 limited to scrutiny of the resolutionplan “as approved” by the requisite percent of voting share offinancial creditors. Even in that enquiry, the grounds on whichthe adjudicating authority can reject the resolution plan is inreference to matters specified in Section 30(2), when theresolution plan does not conform to the stated requirements.Reverting to Section 30(2), the enquiry to be done is in respectof whether the resolution plan provides : (i) the payment ofinsolvency resolution process costs in specified manner inpriority to the repayment of other debts of the corporate debtor,(ii) the repayment of the debts of operational creditors inprescribed manner, (iii) the management of the affairs of thecorporate debtor, (iv) the implementation and supervision of theresolution plan, (v) does not contravene any of the provisions ofthe law for the time being in force, (vi) conforms to such otherrequirements as may be specified by the Board. The Boardreferred to is established under Section 188 of the I&B Code.The powers and functions of the Board have been delineated inSection 196 of the I&B Code. None of the specified functions ofthe Board, directly or indirectly, pertain to regulating the mannerin which the financial creditors ought to or ought not to exercisetheir commercial wisdom during the voting on the resolution planunder Section 30(4) of the I&B Code. The subjective satisfactionof the financial creditors at the time of voting is bound to be amixed baggage of variety of factors. To wit, the feasibility and

ABC

DEF

Aviability of the proposed resolution plan and including theirperceptions about the general capability of the resolution applicantto translate the projected plan into reality. The resolutionapplicant may have given projections backed by normative databut still in the opinion of the dissenting financial creditors, it wouldnot be free from being speculative. These aspects are completelyBwithin the domain of the financial creditors who are called uponto vote on the resolution plan under Section 30(4) of the I&BCode. [Para 35][892-D-H; 893-A, B]

9. The remedy of appeal including the width of jurisdictionof the appellate authority and the grounds of appeal, is creatureCof statute. The provisions investing jurisdiction and authority inthe NCLT or NCLAT has not made the commercial decisionexercised by the CoC of not approving the resolution plan orrejecting the same, justiciable. This position is reinforced fromthe limited grounds specified for instituting an appeal that too

Dagainst an order “approving resolution plan” under Section 31.First, that the approved resolution plan is in contravention of theprovisions of any law for the time being in force. Second, therehas been material irregularity in exercise of powers “by theresolution professional” during the corporate insolvencyresolution period. Third, the debts owed to operational creditorsEhave not been provided for in the resolution plan in the prescribedmanner. Fourth, the insolvency resolution plan costs have notbeen provided for repayment in priority to all other debts. Fifth,the resolution plan does not comply with any other criteriaspecified by the Board. Significantly, the matters or grounds - beFit under Section 30(2) or under Section 61(3) of the I&B Code -are regarding testing the validity of the “approved” resolutionplan by the CoC; and not for approving the resolution plan whichhas been disapproved or deemed to have been rejected by theCoC in exercise of its business decision. [Para 37][894-A-E]G10. The inquiry in such an appeal would be limited to thepower exercisable by the resolution professional under Section30(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 jurisdictionbestowed upon the appellate authority (NCLAT) is also expresslyH

circumscribed. It can examine the challenge only in relation tothe grounds specified in Section 61(3) of the I&B Code, which islimited to matters “other than” enquiry into the autonomy orcommercial wisdom of the dissenting financial creditors. Thus,the prescribed authorities (NCLT/NCLAT) have been endowedwith limited jurisdiction as specified in the I&B Code andnot to act as court of equity or exercise plenary powers.[Para 38][894-F-H]

11. Therefore, neither the adjudicating authority (NCLT)nor the appellate authority (NCLAT) has been endowed with thejurisdiction to reverse the commercial wisdom of the dissentingfinancial creditors and that too on the specious ground that it isonly an opinion of the minority financial creditors. The fact thatsubstantial or majority percent of financial creditors have accordedapproval to the resolution plan would be of no avail, unless theapproval is by vote of not less than 75% (after amendment of2018 w.e.f. 06.06.2018, 66%) of voting share of the financialcreditors. The action of liquidation process postulated in Chapter-III of the I&B Code, is avoidable, only if approval of the resolutionplan is by vote of not less than 75% (as in October, 2017) ofvoting share of the financial creditors. Conversely, the legislativeintent is to uphold the opinion or hypothesis of the minoritydissenting financial creditors. That must prevail, if it is not lessthan the specified percent (25% in October, 2017; and now afterthe amendment w.e.f. 06.06.2018, 44%). The inevitable outcomeof voting by not less than requisite percent of voting share offinancial creditors to disapprove the proposed resolution plan,de jure, entails in its deemed rejection. [Para 39][895-A-D]

12. Concededly, the process of resolution plan isnecessitated in respect of corporate debtors in whom theirfinancial creditors have lost hope of recovery and who have turnedinto non-performer or chronic defaulter. The fact that theconcerned corporate debtor was still able to carry on its businessactivities does not obligate the financial creditors to postponethe recovery of the debt due or to prolong their losses indefinitely.Be that as it may, the scope of enquiry and the grounds on whichthe decision of “approval” of the resolution plan by the CoC canbe interfered with by the adjudicating authority (NCLT), has been

Aset out in Section 31(1) read with Section 30(2) and by the appellatetribunal (NCLAT) under Section 32 read with Section 61(3) ofthe I&B Code. No corresponding provision has been envisagedby the legislature to empower the resolution professional, theadjudicating authority (NCLT) or for that matter the appellateauthority (NCLAT), to reverse the “commercial decision” of theBCoC muchless of the dissenting financial creditors for notsupporting the proposed resolution plan. Whereas, from thelegislative history there is contra indication that the commercialor business decisions of the financial creditors are not open toany judicial review by the adjudicating authority or the appellateCauthority. [Para 42][896-B-E]13. In the I&B Code and the regulations framed thereunderas applicable in October 2017, there was no need for thedissenting financial creditors to record reasons for disapprovingor rejecting resolution plan. Further, there is no provision inDthe I&B Code which empowers the adjudicating authority (NCLT)to oversee the justness of the approach of the dissenting financialcreditors in rejecting the proposed resolution plan or to engagein judicial review thereof. Concededly, the inquiry by theresolution professional precedes the consideration of theresolution plan by the CoC. The resolution professional is notErequired to express his opinion on matters within the domain ofthe financial creditor(s), to approve or reject the resolution plan,under Section 30(4) of the I&B Code. At best, the AdjudicatingAuthority (NCLT) may cause an enquiry into the “approved”resolution plan on limited grounds referred to in Section 30(2)Fread with Section 31(1) of the I&B Code. It cannot make anyother inquiry nor is competent to issue any direction in relationto 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. ItGdoes not postulate jurisdiction to undertake scrutiny of thejustness of the opinion expressed by financial creditors at thetime of voting. To take any other view would enable even theminority dissenting financial creditors to question the logic orjustness of the commercial opinion expressed by the majority ofHthe financial creditors albeit by requisite percent of voting share

to approve the resolution plan; and in the process authorize theadjudicating authority to reject the approved resolution plan uponaccepting such challenge. That is not the scope ofjurisdiction vested in the adjudicating authority under Section 31of the I&B Code dealing with approval of the resolution plan.[Para 44][896-H; 897-A-E]

14. Since none of the grounds available under Section 30(2)or Section 61(3) of the I&B Code are attracted in the fact situationof the present case, the Adjudicating Authority (NCLT) as wellas the Appellate Authority (NCLAT) had no other option but torecord that the proposed resolution plan concerning therespective corporate debtor (KS&PIPL and IIL) stood rejected.Further, as no alternative resolution plan was approved by therequisite percent of voting share of the financial creditors beforethe expiry of the statutory period of 270 days, the inevitablesequel is to pass an order directing initiation of liquidationprocess against the concerned corporate debtor in the mannerspecified in Chapter III of the I&B Code. [Para 45][897-F, G]

15.1 Insolvency and Bankruptcy Code (Amendment) Act,2017 (No.8 of 2018) is deemed to have come into force on the23[rd] day of November, 2017. Section 6 of this Act purports tosubstitute Section 30(4) of the principal Act. The change broughtabout by this amendment is insertion of words “after consideringits feasibility and viability, and such other requirements as maybe specified by the Board”. In addition, three provisos have beenadded to sub-section (4). The amendment is only to declare thatthe financial creditors ought to consider the feasibility and viabilityand such other requirements as may be specified by the Board,while exercising their option on the resolution plan - to approveor not to approve the same. It is rudimentary that the financialcreditors (in most cases are national Bankers), who are calledupon to consider the proposed resolution plan would take intoaccount all the relevant materials, including the feasibility andviability and such other requirements as may be specified by theBoard. Additionally, the financial creditors are also required tobear in mind that the legislative intent is to bring about resolutionand revival of the corporate debtors so as to benefit not only thecorporate debtor but also other stake-holders in equal measure.[Para 46, 47][898-C, H; 899-A-D]

ABC

DEF

A15.2 The amended provision merely restates as to whatthe financial creditors are expected to bear in mind whilstexpressing their choice during consideration of the proposal forapproval of resolution plan. No more and no less. Indubitably,the legislature has consciously not provided for ground tochallenge the justness of the “commercial decision” expressedBby the financial creditors – be it to approve or reject the resolutionplan. The opinion so expressed by voting is non-justiciable.Further, in the present cases, there is nothing to indicate as towhich other requirements specified by the Board at the relevanttime have not been fulfilled by the dissenting financial creditors.CThe Board established under Section 188 of the I&B Code canperform powers and functions specified in Section 196 of the I&BCode. That does not empower the Board to specify requirementsfor exercising commercial decisions by the financial creditors inthe matters of approval of the resolution plan or liquidation

process. Viewed thus, the amendment under consideration doesDnot take the matter any further. [Para 48][899-D-G]

16.1 By the amendment to Section 30(4) which has comeinto force w.e.f. 6[th] day of June, 2018 vide the Insolvency andBankruptcy Code (Second Amendment) Act, 2018 (No.8 of 2018).A new norm and qualifying standard for approval of resolutionEplan has been introduced. That cannot be treated as declaratory/clarificatory or stricto sensu procedural matter as such. Whereas,the stated Amendment Act makes it expressly clear that it shallbe 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)Fof the Amendment Act of 2018, it would not make the provisionretrospective in operation or having retroactive effect. Thisinterpretation is reinforced by the fact that there is no indicationin the Amendment Act of 2018 that the legislature intended toundo and/or govern the decisions already taken by theCoC of the concerned corporate debtors prior to 6-06-2018.G[Para 50, 51][900-B, D-F]

16.2 Even the report of the Insolvency Law Committee ofMarch, 2018 report does not mention about introducing theamendment to Section 30(4), regarding the thresholdrequirement with retrospective or retroactive effect. Indeed, theH

report has noted about the necessity to alter the low thresholdlevel of 25% of voting share for rejection of the resolution planwhich, it felt, should be increased to 44%. [Para 52][901-G, H]

16.3 The Amendment Act of 2018 having come into forcew.e.f. 6[th] day of June, 2018, therefore, will have prospectiveapplication and apply only to the decisions of CoC taken on orafter that date concerning the approval of resolution plan.[Para 53][903-F]

16.4 In the present case, however, the amendment underconsideration pertaining to Section 30(4), is to modify the votingshare threshold for decisions of the CoC and cannot be treatedas clarificatory in nature. It changes the qualifying standards forreckoning the decision of the CoC concerning the process ofapproval of resolution plan. The rights/obligations crystallizedbetween the parties and, in particular, the dissenting financialcreditors in October 2017, in terms of the governing provisionscan be divested or undone only by law made in that behalf bythe legislature. There is no indication either in the report of theCommittee or in the Amendment Act of 2018 that the legislatureintended to undo the decisions of the CoC already taken prior to6[th] day of June, 2018. It is not possible to fathom how theprovisions of the amendment Act 2018, reducing the thresholdpercent of voting share can be perceived as declaratory orclarificatory in nature. In such situation, the NCLAT could nothave examined the case on the basis of the amended provision.For the same reason, the NCLT could not have adopted differentapproach in these matters. Hence, no fault can be found with theimpugned decision of the NCLAT. [Para 58][907-D-F]16.5 Prior to the amendment of Regulation 39 which hascome into force with effect from 4[th] July, 2018, Regulation 39(3)merely provided that the Committee may approve any resolutionplan with such modifications as it deems fit. In the first place,amendment to regulation cannot have retrospective effect so asto impact the decision of the CoC of the concerned corporatedebtor – taken before the amendment of the said regulation.There is no indication in the Code as amended or the regulationsto suggest that as consequence of this amendment the decisionsaleady taken by the concerned CoC prior to 3[rd] July, 2018 be

Atreated as deemed to have been vitiated or for that matter,necessitating reversion of the proposal to CoC for recordingreasons, that too beyond the statutory period of 270 days. newlife cannot be infused in the resolution plan which did notfructify within the statutory period, by such circuitous route.[Para 59 and 60][907-H; 908-C, D]B

16.6 Assuming that this provision was applicable to thepresent cases, non-recording of reasons for approving orrejecting the resolution plan by the concerned financial creditorduring the voting in the meeting of CoC, would not render thefinal collective decision of CoC nullity per se. Concededly, if theCobjection to the resolution plan is on account of infraction ofground(s) specified in Sections 30(2) and 61(3), that must bespecifically and expressly raised at the relevant time. For, theapproval of the resolution plan by the CoC can be challenged onthose grounds. However, if the opposition to the proposedDresolution plan is purely commercial or business decision, the

same, being non-justiciable, is not open to challenge before theAdjudicating Authority (NCLT) or for that matter the AppellateAuthority (NCLAT). If so, non-recording of any reason for takingsuch commercial decision will be of no avail. In the present case,admittedly, the dissenting financial creditors have rejected theEresolution plan in exercise of business/commercialdecision and not because of non-compliance of the groundsspecified in Section 30(2) or Section 61(3), as such. Resultantly,the amended regulation pressed into service, will be of no avail.[Para 61][908-E-H]

16.7 In the present case, in terms of Section 30 of the I&BCode, the decision is taken collectively after due negotiationsbetween the financial creditors who are constituents of the CoCand they express their opinion on the proposed resolution planin the form of votes, as per their voting share. In the meeting ofGCoC, the proposed resolution plan is placed for discussion andafter full interaction in the presence of all concerned and theresolution professional, the constituents of the CoC finallyproceed to exercise their option (business/commercial decision)to approve or not to approve the proposed resolution plan. Insuch case, non-recording of reasons would not per se vitiate theH

collective decision of the financial creditors. The legislature hasnot envisaged challenge to the “commercial/business decision”of the financial creditors taken collectively or for that mattertheir individual opinion, as the case may be, on this count.[Para 62][910-F-H; 911-A]

16.8 It is enough for the dissenting financial creditors todisapprove the proposed resolution plan by voting as per itsvoting share, based on commercial decision. Indeed, if theopposition of the dissenting financial creditors is in regard tomatter(s) within the jurisdiction of the Tribunal ascribable toSections 30(2) or 61(3), then the situation may be somewhatdifferent. But that is not in issue in these cases. Therefore, itcannot be said NCLAT committed manifest error in not callingupon the dissenting financial creditors to respond to theapplications filed in the concerned appeals pending before it.[Para 63][911-B-C]16.9 It is not open to the Adjudicating Authority to entertaina revised resolution plan after the expiry of the statutory periodof 270 days. Accordingly, no fault can be found with the NCLATfor not entertaining such application. [Para 64][911-D]

16.10 In both the cases, the vote of approval exceeded morethan 66% of the voting share of the financial creditors and yetthe benefit of the amended provision could not be availed, as itcame only during the pendency of the appeal before the NCLAT.This Court in exercise of powers u/Article 142 of the Constitutioncannot set aside the order passed by the Tribunal and relegatethe parties in both the cases, before the NCLT for consideringthe proceedings afresh in light of the amended provision reducingthe threshold requirement of percent of voting share offinancial creditors to 66%. This will result in issuing directionsin the teeth of the provisions as applicable to the present cases.[Para 65][911-F-H]

17. The NCLAT has justly concluded in the impugneddecision that the resolution plan of the concerned corporatedebtor(s) has not been approved by requisite percent of votingshare of the financial creditors; and in absence of any alternativeresolution plan presented within the statutory period of 270 days,

Athe inevitable sequel is to initiate liquidation process underSection 33 of the Code. [Para 66][912-A, B]

Thirumalai Chemicals Limited v. Union of India and Ors.(2011) 6 SCC 739 : [2011] 4 SCR 838 ; PurbanchalCables & Conductors (P) Ltd. v. Assam SEB and Anr.(2012) 7 SCC 462 : [2012] 6 SCR 905 ; CIT v. VatikaTownship (P) Ltd. (2015) 1 SCC 1 : [2014] 12 SCR1037 ; Vijayalakshmi Rice Mills, New Contractors Co.and Ors. v. State of Andhra Pradesh (1976) 3 SCC37 : [1976] 3 SCR 775 - relied on

Mardia Chemicals limited and Others v. Union of Indiaand Others (2004) 4 SCC 311 : [2004] 3 SCR 982 -distinguished

Gottumukkala Venkata Krishamraju v. Union of India(2018) SCC Online SC 1386 ; Government of India v.India Tobacco Association (2005) 7 SCC 396 : [2005]2 Suppl. SCR 859 ; Zile Singh v. State of Haryana (2004)8 SCC 1 : [2004] 3 Suppl. SCR 400 ; Mithilesh Kumari& Another v. Prem Behari Khare [1989] 2 SCC 95 :[1989] 1 SCR 621 ; Dahiben (Widow of RanchnodjiJivanji) & Ors. v. Vasanji Kevalbhai (dead) & Others(1995) Supp. 2 SCC 295 ; B.K. Educational ServicesPrivate Ltd. v. Parag Gupta & Associates (2018) SCCOnline SC 1921 ; State Bank of India v. Ramakrishnan(2018) SCC Online SC 963 ; Rustom & Hornby (I) Ltd.v. T.B. Kadom (1976) 3 SCC 71 : [1976] 1 SCR 119 ;Bharat Singh v. Management of New Delhi TuberculosisCentre, New Delhi (1986) 2 SCC 614 : [1986] 2 SCR169 ; Padfield and Others v. Minister of Agriculture,Fisheries and Food (1968) 2 WLR 924 ; DhampurSugar Mills Ltd. v. State of U.P. and Others (2007) 8SCC 338 : [2007] 10 SCR 245 ; Tata Cellular v. Unionof India (1996) 6 SCC 651 : [1987] 2 SCR 841 ; Unionof India and Another v. Cynamide India Ltd. andAnother (1987) 2 SCC 720 : [1987] 2 SCR 841 ; ShriSitaram Sugar Company Limited and Another v. Unionof India and Others (1990) 3 SCC 223 : [1990] 1 SCR

K. SASHIDHAR v. INDIAN OVERSEAS BANK & ORS.

909 ; United Bank of India, Calcutta v. Abhijit Tea Co.Pvt. Ltd. and Others (2000) 7 SCC 357 : [ 2000] 3 Suppl.SCR 153 ; Karan Singh and Others v. Bhagwan Singh(Dead) By Lrs. And Others (1996) 7 SCC 559 : [1996]1 SCR 924 ; Arcelormittal India Private Limited v.Satish Kumar Gupta and Others (2018) SCC Online1733 ; Karnataka State Industrial Investment &Development Corpn. Ltd. v. Cavalet India Ltd. andOthers (2005) 4 SCC 456 : [ 2005] 2 SCR 1183 ; S.L.Srinivasa Jute Twine Mills (P) Ltd. v. Union of Indiaand Another (2006) 2 SCC 740 : [2006] 2 SCR 235 ;Rajeev Chaudhary v. State (NCT) of Delhi (2001) 5 SCC34 : [2001] 3 SCR 508 ; Hitendra Vishnu Thakur andOthers v. State of Maharashtra and Others (1994) 4SCC 602 : [1994] 1 Suppl. SCR 360 ; InnoventiveIndustries Limited v. ICICI Bank and Another [2018] 1SCC 407 : [2017] 8 SCR 33 - referred to

Case Law Reference

From the Judgment and Order dated 06.09.2018 of the NationalECompany Law Appellate Tribunal, New Delhi in Company Appeal (AT)(Insolvency) No.335 of 2017.

WITH

Civil Appeal Nos. 10719, 10971 of 2018 and 1531 of 2019.

C. U. Singh, Dr. A.M. Singhvi, Colin Gonsalves, Shyam Divan,Sr. Advs., G. Ramakrishna Prasad, Suyodhan Byrapaneni,Ms. Filza Moonis, Mohd. Wasay Khan, John Mathew, Karthik S. D.,Bharat J. Joshi, Shikhil Suri, Shiv Kumar Suri, Kamal Deep Dayal, Ms.Shilpa Saini, Ms. Vinishma Kaul, Ms. Saakshi Mago, Ram Lal Roy, Ms.Gauri Rasgotra, Animesh Bisht, Karan Khanna, Siddhant Sharma (ForGM/S. Cyril Amarchand Mangaldas), Kunal Tandon, Ms. Pragya Baghel,Ms. Niti Jain, Ms. Richa, Ms. Mahima Singh, Ritesh Kumar, PranabKumar Mullick, Ms. Soma Mullick, Sebat Kumar Deuria,Ms. Prabha Swami, Ms. Divya Swami, Soumik Ghosal, V.K. Sajith, T.N.Durga Prasad, Advs. for the appearing parties.

The Judgment of the Court was delivered by

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 withthe consent of the contesting respondents.

3. These appeals have arisen from the common judgment andorder of the National Company Law Appellate Tribunal (for short“NCLAT”), New Delhi, dated 6[th] September, 2018, rendered in appealsfiled in relation to the insolvency resolution process under the provisionsof the Insolvency and 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, Telanganaand Innoventive Industries Ltd. (for short “IIL”) having its registeredoffice at Pune, Maharashtra.

4. The NCLAT affirmed the order passed by the NationalCompany Law Tribunal, Mumbai Bench (for short “NCLT Mumbai”)recording rejection of the resolution plan concerning IIL and directinginitiation of liquidation process under Chapter III of Part II of the I&BCode. As regards KS&PIPL, the NCLAT reversed the decision of theNational Company Law Tribunal, Hyderabad (for short “NCLTHyderabad”) which had approved its resolution plan and insteadremanded the proceedings to NCLT Hyderabad for initiation of liquidationprocess in terms of Section 33 and 34 of the I&B Code.

5. The NCLAT held that as, in both the cases, the resolution plandid not garner support of not less than 75% of voting share of the financialcreditors constituting the Committee of Creditors (for short “CoC”) thesame stood rejected and thereby warranted initiation of liquidation processof the concerned corporate debtor, namely, KS&PIPL and IIL.

6. For considering the grounds of challenge in the respectiveappeals, we deem it appropriate to advert to the relevant facts concerningthe respective corporate debtor.

7. KS&PIPL was incorporated as private limited company on20[th] October, 2008. Its steel division commenced operation on 30[th] March,2013. The company was functional till the Financial Year 2014-15.However, it could not continue beyond this period due to deficient workingcapital and various other factors including financial crisis, leading to heavy

Aoperational losses and consequent erosion of the entire net worth.Attempts were made to revive the company by forming joint lendersforum by the consortium of banks. As that attempt did not fructify, thecompany filed an application with BIFR under Section 15(1) of SickIndustrial Companies (Special Provisions) Act, 1985 on 15[th] November,2016. The said proceedings abated due to notification dated 25[th]BNovember, 2016, as to the repeal of the Act. Eventually, the companyfiled petition under Section 10 of the I&B Code read with Rule 7 of theInsolvency 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 10[th] February,C2017, by the NCLT Hyderabad and an Interim Resolution Professional(for short “IRP”) came to be appointed with directions to constitute aCoC. The CoC was constituted and the first meeting was held on 8[th]March, 2017 to confirm the appointment of IRP and authorise the leadbank, namely the Indian Bank to inform the approved valuers that they

should proceed with their valuation. The second meeting of CoC wasDheld on 6[th] April, 2017, for taking on record the predicated expenses andessential costs and factory maintenance costs and to confirm about theoperation of the bank account with lead Bankers, Indian Bank by IRPand Chief Financial Officer. In the third meeting of CoC, convened on12[th] May, 2017, the corporate debtor made presentation for resolutionEplan, giving three options. In that meeting, it was resolved to appoint SBICapital Markets Limited to determine the sustainable debt of thecorporate debtor to enable the creditors to assess the viability of theresolution plan. In the fourth meeting of CoC, held on 27[th] June, 2017,the resolution plan submitted by the corporate debtor was reviewed anda draft Techno Economic Viability report by SBI Capital Markets LimitedFwas also considered. It is not necessary to dilate on other aspects discussedand resolved in this meeting. As the statutory period of 180 days forcompletion of CIRP was to expire, an application was filed before theNCLT Hyderabad for extending the time by further 90 days. Thus, theNCLT Hyderabad, on 27[th] July, 2017, extended further time by 90 daysGstarting from 9[th] August, 2017. The sixth meeting of the CoC was heldon 24[th] August, 2017, when the corporate debtor submitted an expressionof interest from AREA Group of Companies, Chandigarh to infuse Rs.150 Crore in the form of debentures, subject to getting firm approvalfrom the lenders. The said proposal was circulated during the meetingwhich concluded with the resolution that the same be placed along withHthe final report of SBI Capital Markets Limited, which was still awaited.The seventh meeting of the CoC was held on 26[th] September, 2017 inwhich various options were deliberated but the discussion remainedinconclusive. In the eighth CoC meeting, held on 16[th] October, 2017, itwas agreed that the resolution plan submitted by the corporate debtorshould provide for monitoring and supervision by the resolutionprofessional, in case the plan was approved by the CoC. The IndianBank, which had 22.33% of voting power, conveyed its disapproval tothe proposed resolution plan. JMFARC Limited, having 12.39% of votingpower, had already rejected the resolution plan in the previous meetingheld on 26[th] September, 2017. Both these banks, however, agreed toreconsider the resolution plan if portion of the sustainable debt was tobe increased. The corporate debtor was asked to submit fresh OneTime Settlement (OTS) proposal through email to all the bankers forconsideration. Accordingly, the corporate debtor sent an email on 18[th]October, 2017, with another OTS scheme proposal as an alternative tothe resolution plan already submitted. The corporate debtor offered anOTS scheme proposal of Rs.525 Crore with structured repaymentperiod indicated therein. In response, the Indian Bank, through an emailsent on 25[th] October, 2017, called upon the corporate debtor to file anOTS scheme proposal for 600 Crore. After interacting with the bankers,a counter proposal was given by the corporate debtor which waseventually considered in the 9[th] CoC meeting held on 27[th] 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% votingshare namely Indian Bank, JM Financial Asset Reconstruction Co. Ltd.,Allahabad Bank and Andhra Bank. The Indian Overseas Bank havingvoting share of 15.15%, rejected the resolution proposal and cited reasonsthrough its letter dated 27[th] October, 2017. Three other Banks, namelyOriental Bank of Commerce, Central Bank of India and Bank ofMaharashtra, having 29.12% voting share, expressed that they remainedopen, awaiting in-principle approval from their respective sanctioningauthority. Eventually, on 30[th] October, 2017, Oriental Bank of Commerce,having 10.94% voting share, sent an email conveying their “in-principleapproval” to the proposed resolution plan qua revised OTS scheme andthat their final approval would be subject to similar approvals from theco-lenders. On the same day, Bank of Maharashtra, having 6.36% votingshare, conveyed that they were open to consider the revised resolutionplan. The Central Bank of India, having 11.82% voting share, conveyed

CDEF

Aits disapproval to the revised resolution plan. Resultantly, as on 30[th]October, 2017, the voting share of consenting Banks expressly approvingthe proposed resolution plan was only 66.67% and the voting share ofdissenting lender Banks was 26.97%. Maharashtra Bank, having 6.36%voting share, had not either approved, rejected or abstained from votingbut had conveyed that they remained open to consider the resolutionBplan. The fact remains that the proposed resolution plan did not garnerapproval of not less than 75% of voting share of the financial creditorsuntil the resolution professional (IRP) filed an affidavit before theadjudicating authority (NCLT Hyderabad) on 3[rd] November, 2017,

submitting the outcome of the 9[th] CoC meeting. The Managing DirectorCof the corporate debtor (KS&PIPL) appeared before the adjudicatingauthority (NCLT) on 6[th] November, 2017, and also filed memo on 17[th]November, 2017, inter alia submitting that for the financial creditor whochose not to participate in the voting, the votes and the majority be countedwithout their vote. In that eventuality, the percentage of financial creditors

who chose to participate and who approved of the resolution plan wouldDwork out to 78.63% and therefore, it can be assumed that the resolutionplan has been approved by the CoC. The NCLT Hyderabad vide judgmentdated 27[th] November, 2017, eventually, allowed the petition filed by thecorporate debtor and approved the resolution plan/revised OTS scheme,

as submitted by the resolution professional vide affidavit dated 3[rd]ENovember, 2017, and further declared that the moratorium imposed on10[th] February, 2017, ceased to have effect from the date of receipt ofcopy of the order. further direction came to be issued that the corporatedebtor shall reinstate all the employees who were on the rolls of company.Aggrieved by the said decision, three financial creditors who were partof the CoC, namely Indian Overseas Bank, Central Bank of India andFBank of Maharashtra filed appeals under Section 61 before the NCLATquestioning the authority of NCLT Hyderabad, to approve of the resolutionplan, despite the fact that the same did not receive approval of not lessthan 75% of voting share of financial creditors. The Managing Directorof the corporate debtor also filed an independent appeal under SectionG61 of the I&B Code with reference to the observations made by theNCLT Hyderabad regarding the corporate guarantee to be proceededwith. As aforesaid, these appeals were heard together along with appealsconcerning another corporate debtor, namely IIL and came to be disposedof by the common impugned judgment dated 6[th] September, 2018, whereinit has been held that approval to the proposed resolution plan by voteH

of not less than 75% of voting share of the financial creditors wasmandatory and it was not open to the adjudicating authority to disregardthe mandate of the CoC by adopting convoluted approach. Againstthis decision, the Managing Director of the corporate debtor, namely(KS&PIPL) has filed civil appeal under Section 62 of the I&B Codein 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 corporatedebtor who holds 21.82% shares and was the erstwhile Chairman andManaging Director of the company. Civil Appeal No.10971 of 2018 isfiled by the workers’ union of the same corporate debtor, namely,Innoventive Industries Kamgar Sanghathana. The workers’ union hasfiled another appeal arising from SLP (C) No.29181 of 2018 against thejudgment and order dated 24[th] September, 2018 passed by the High Courtof Judicature at Bombay in Writ Petition (C) No.136 of 2018, filed bythem to challenge the judgment passed by the NCLT Mumbai dated 23[rd]November, 2017/8[th] December, 2017, and for directing the Union ofIndia to revive the corporate debtor (IIL) and save it from liquidation bydispensing with the 8% shortfall for touching the criteria of 75% of consentof CoC for the approval of revival as per the provisions of the I&BCode. The High Court rejected the writ petition filed by the workers’union on the ground that they had an alternative and efficacious remedyagainst the decision of the Tribunal. In other words, the Special LeavePetition primarily questions the decision of rejection of the proposedresolution plan in respect of the corporate debtor (IIL).9. As regards the corporate debtor (IIL), the relevant facts are asfollows. The said corporate debtor had suffered losses. As result, ithad 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 consortium, led by CentralBank of India. The lenders’ forum approved the restructuring plan ofthe company on 24[th] June, 2014. ICICI Bank filed an Insolvency andBankruptcy application under the I&B Code against the corporate debtor(IIL) in December 2016. That was admitted by the NCLT Mumbai,being the adjudicating authority, on 17[th] January, 2017. An IRP wasappointed and moratorium was declared. The said corporate debtorasserts that despite the pendency of applications, the company hadachieved turnover of Rs.337 Crore upto March 2017, with operationalrevenues of Rs.125 Crore during the relevant period till September 2017.

AThe total indirect tax paid by the company is approximately Rs.8.27Crore during the same period. Be that as it may, consequent to the orderof the adjudicating authority (NCLT) dated 17[th] January, 2017, the firstCoC meeting was held on 15[th] February, 2017 wherein the appointmentof IRP was confirmed. Eventually, in the sixth CoC meeting held on 19[th]June, 2017, it was unanimously resolved to extend the insolvency resolutionBperiod till 14[th] October, 2017. The IRP then approached 27 parties (16prospective 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 proposedresolution applicants, the subject resolution plan was submitted to theCIRP on 3[rd] September, 2017, which was taken up for consideration bythe CoC in its meeting on 4[th] October, 2017, by e-voting. Financial creditorsholding 66.57% voting share voted in favour of approving the proposedresolution 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 forDwant of support of the requisite percent of financial creditors, havingvoting share of not less than 75%. The IRP then filed an application on12[th] October, 2017, before the adjudicating authority (NCLT) prayingfor initiating liquidating process against IIL. The NCLT Mumbai, afterconsidering the submissions of both sides, by order pronounced in courtEon 23[rd] November, 2017 and delivered on 8[th] December, 2017, directedinitiation of liquidation proceeding against the corporate debtor (IIL).The appellant in the leading appeal of the second set of appeals, beingthe former Chairman and Managing Director of the corporate debtor(IIL) had filed an interim application before the NCLT Mumbai prayingthat the dissenting financial creditors be directed to disclose on oathFreasons/basis for, or the decision making process involved in, voting againstthe resolution plan and declaration that the dissenting financial creditorsvoted with malicious intention of liquidation and hence, their votes oughtto be ignored. The workers’ union of the corporate debtor (IIL) had filedan interim application, opposing liquidation of the company. The resolutionGapplicant had also filed an application to allow it to submit revisedresolution plan and to invite fresh vote thereon albeit after the timeearlier envisaged for obtaining shareholders approval. According to theappellants in the second set of appeals, NCLT did not call for the responseof the opposite parties on the concerned applications and insteadproceeded to pass the impugned order rejecting the applications andHdirecting 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. This appeal was heard along with the appeals concerninganother corporate debtor (KS&PIPL) and disposed of together by theNCLAT as common issue was involved in all these appeals. As aforesaid,by the impugned judgment NCLAT has held that the requirement ofapproval of resolution plan by vote of not less than 75% of voting shareof financial creditors was mandatory and hence dismissed the appealpreferred by the appellant. Aggrieved, the said appellant and the workers’union of KS&PIPL have filed appeals against the said decision of NCLATand the High Court respectively.

10. Mr. C.U. Singh, learned senior counsel appearing for theappellant in the case of corporate debtor KS&PIPL had canvassed two-pronged submissions. The first is on the basis of the unamended provisionsas applicable on the date of the resolution passed by the CoC in October,2017. It is urged that on fair interpretation of those provisions, it oughtto be held that the same were not mandatory. Even assuming that thesame were mandatory, considering the fact that significant section ofthe financial creditors had abstained from voting on 27[th] October, 2017,their votes were required to be ignored for the purpose of computing therequired percentage of voting share. In that case, it would work out tobe more than 75%. In that, the percentage of votes for approval (55.73%)of the resolution proposal and the voting share rejecting the proposalwas only 15.15%. Taking these votes only, the proportionate percentageof the voting share for approval will obviously be more than 75% (i.e.approximately 78.63%). Thus understood, the NCLT Mumbai ought tohave approved the resolution proposal. The second limb of the argumentis that the NCLAT, which had decided the appeals on 6[th] September,2018, ought to have taken into account the amendments brought intoforce w.e.f. 23[rd] November, 2017 and followed by another amendmentbrought into force w.e.f. 6[th] June, 2018 to the provisions of I&B Codeand including the amendment to the Regulations of the Insolvency andBankruptcy Board of India (Insolvency Resolution Process for CorporatePersons) Regulations, 2016 brought into force from 4[th] July, 2018. For,the same came into force during the pendency of the appeals. Further,the purport of the said amendments posit that the CoC should be objectivein its approach and consider the feasibility and viability of the resolutionproposal and must assign reasons for approval or rejection of the proposal,

Aas the case may be. Additionally, the requirement of percentage of votesof the financial creditors stood reduced to 66% of voting share which, inthe present case, has been fulfilled on account of the approval given by55.73% in the meeting convened on 27[th] October, 2017, and followed byin-principle approval conveyed via email on 30[th] October, 2017, by OrientalBank of Commerce, having 10.94% voting power. In effect, this argumentBproceeds on the assumption that the amendments to the Code broughtinto force w.e.f. 23[rd] November, 2017 and in particular on 6[th] June, 2018,would have retroactive effect, as is clear from the legislative intent behindthe said amendments. The said amendments are made applicable fromthe inception and to pending proceedings also because it is to substituteCthe original provision as was applicable on the date of the resolutiondated 27[th] October, 2017, and filing of affidavit by IRP before theadjudicating authority. To buttress this argument, reliance has been placedon the exposition in Gottumukkala Venkata Krishamraju vs. Unionof India[1], Government of India vs. India Tobacco Association[2]andZile Singh vs. State of Haryana[3]. In support of the argument that theDamendment to Section 30(4) applied to pending proceedings, reliancehas been placed on the judgment in Mithilesh Kumari & Another Vs.Prem Behari Khare[4], Dahiben (Widow of Ranchnodji Jivanji) &Ors. vs. Vasanji Kevalbhai (dead) & Others[5]. Reliance is also placed

on the decision in B.K. Educational Services Private Ltd. vs. ParagEGupta & Associates[6]which had considered the applicability of Section238-A inserted by way of the same amendment Act in the I&B Codew.e.f. 6[th] June, 2018. In this decision, the court held that the legislativeintent behind the amendment was to apply the Limitation Act from thevery beginning to NCLT and NCLAT while deciding the applicationsfiled under Sections 7 and 9 of the I&B Code and the appeals therefrom.FReliance is also placed on the decision in State Bank of India vs.Ramakrishnan[7] which had dealt with amendment by way of substitutionto Section-14(3) of the I&B Code concerning surety in contract ofguarantee for corporate debtor. The court held that the amendmentwas retrospective. Reliance is also placed on the decision in Rustom &GHornby (I) Ltd. vs. T.B. Kadom[8] in which this court gave retrospective1(2018) SCC Online SC 1386-Paragraphs 13-16.

2(2005) 7 SCC 396 Paragraphs 14-16, 24, 26&28.

3(2004) 8 SCC 1 Paragraphs 14-16.

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.H7(2018) SCC Online SC 963. Paragraph 34.

8(1976) 3 SCC 71. Paragraph 6.

construction to Section 2-A of the Industrial Disputes Act, 1947 and alsoin Bharat Singh vs. Management of New Delhi Tuberculosis Centre,New Delhi[9] to the same effect. The thrust of the argument is that theobject of the I&B Code is resolution rather than liquidation as also themaximization of value of assets of such persons, to promoteentrepreneurship. To buttress this argument, reliance is also placed onthe report of the Insolvency Law Committee in March 2018. Paragraph11.6 therein states that in order to further the stated object of the I&BCode to promote resolution, the voting share for approval of resolutionplan may be reduced to 66%. It is submitted that this should have beentaken into account by the NCLAT in reference to the amended provisionsbrought into force during the pendency of the appeal before it. It is alsocontended that the adjudicating authority (NCLT) as well as the appellateauthority (NCLAT), while approving or rejecting the resolution plan, isduty bound to exercise judicious mind and be alive to the facts andcircumstances of the specific case before it and the socio-economicbenefit considering the favourable opinion noted by the resolutionprofessional in his affidavit, that there was every possibility of revivingthe corporate debtor. Even as per the report submitted by M/s. AtlasFinancial Research & Consulting Private Limited regarding thoroughTechno Economic Viability study conducted in respect of the corporatedebtor (KS&PIPL), it has been noted that the company was technicallyfeasible and economically viable. The corporate debtor was facing afinancial crisis due to abrupt and unilateral stoppage of operations in theworking capital loan account and the proposed resolution plan fulfilledall the eligibility criteria for its approval under the provisions of the I&BCode. Furthermore, the dissenting financial creditors having failed tooffer any reason whatsoever for rejecting the resolution proposal, it mustfollow that they did not do so in good faith but with malicious intent,warranting intervention by the adjudicating authority and the appellateauthority.11. Mr. A.M. Singhvi, learned Senior Counsel appearing for theappellant concerning the corporate debtor (IIL) would submit that theCoC, being the custodian of public interest, is under statutory duty toexercise its power under Section 30(4) of the I&B Code reasonably andfairly. Section 30(4) posits an obligation upon the CoC to adopt resolutionplan 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.

A23[rd] November, 2017 are only declaratory/clarificatory of the law andresultantly, retrospective. He submits that giving reasons for the viewexpressed on the resolution plan, be it for approval or rejection, is thequintessence to fulfill the requirement of reasonable and fair approachof the CoC. Reasons so given, would demonstrate whether it is bonafideor malicious act of the financial creditors. That has now been clarifiedBand restated by the amending regulation 39(3) which has come into forcew.e.f. 4[th] July, 2018. Being clarificatory amendment, the same wouldtake effect retrospectively and is applicable even to pending proceedings.It is then contended that if no reason is assigned or forthcoming, thecourt is not powerless to strike down the exercise of power by theCconcerned financial creditor if it was possible to infer from thecircumstances emanating from the record that the exercise of such powerwas wrongly exercised. To buttress this submission reliance was placedupon Mardia Chemicals limited and Others vs. Union of India andOthers[10] which had read the requirement of fairness and reasonableness

into Section 13 of the SARFAESI Act. The court declared that reasonsDmust be given and communicated. This “reading in” of the principle offairness and reasonableness, was eventually codified in the form ofSection 13(3-A) of that Act. Such interpretation was inexorable in respectof provisions as draconian as Section 30(4), resulting in the inevitable

consequence of liquidation of the corporate debtor. The provisions ofEthe I&B Code must be so construed as not to be financial creditor centricbut to be an inclusive approach where all stakeholders’ interests arebalanced and particularly for exploring the possibility of revival of thecorporate debtor and maximisation of the value of assets. In the presentcase, contends learned counsel, the only plea taken by the dissentingfinancial creditors before the adjudicating authority (NCLT), was thatFthey had taken commercial decision and it was not open to judicialscrutiny. Even if it is commercial decision, contends learned counsel, itmust fulfill the test of reasonable and fair approach to be supported bytangible reasons. In the absence of reasons, the adjudicating authority(NCLT) must exercise its jurisdiction to ascertain whether the exerciseGof power by the CoC is reasonable and in conformity with the purposeof the Code. If the resolution plan is ex facie viable and yet the dissentingfinancial creditors reject the same, such exercise of power would besubversive of the policy of the Code, requiring intervention by theadjudicating authority (NCLT). Whereas, such case would imply

H10(2004) 4 SCC 311, paragraph 45.

duty on the CoC to exercise its power to approve the plan. To counterthe defence of the dissenting financial creditors regarding commercialdecision, reliance was placed on Padfield and Others vs. Minister ofAgriculture, Fisheries and Food[11]and Dhampur Sugar Mills Ltd.vs. State of U.P. and Others[12]. Learned counsel contends that abdicationof duty by the CoC to consider the feasibility and viability projected inthe proposed resolution plan would be fatal. It would be case of nonapplication of mind by the CoC, if not malicious approach in rejectionof the proposed resolution plan. The test of limits of judicial review, asexpounded in Tata Cellular Vs. Union of India[13] ought to be invokedto rein in the unbridled exercise of power by the CoC. The Tribunalcould certainly discard the view of the dissenting financial creditors if itwas satisfied that such decision could not be reached by any reasonableand prudent person. It is also possible for the adjudicating authority(NCLT) to intervene if the circumstances suggest that the decision ofdissenting financial creditors was the outcome of abuse of power orbeing irrational and unreasonable. Reliance is also placed on the decisionin Union of India and Another vs. Cynamide India Ltd. and Another[14]and Shri Sitaram Sugar Company Limited and Another vs. Unionof India and Others[15]. As regards the amendment brought into effectfrom 23[th] November, 2017 to Section 30(4) of the I&B Code, it iscontended that the same must be construed as only clarificatory andresultantly, be given retrospective effect. Inasmuch as the discretiongiven to the constituents of CoC, namely the financial creditors underSection 30(4) of the I&B Code is required to be exercised in justmanner and by giving due regard to the feasibility and viability of planproposed for revival of the corporate debtor. There is nothing else relevantfor discharging the statutory obligation of approving or rejecting theproposed resolution plan. With regard to the second amendment to Section30(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 contendsthat even the same operates from the time the section was brought onthe statute book. For, the legislature consciously lowered the thresholdrequirement to 66%. It was to infuse more flexibility in the resolutionprocesses and to maximise the effort for revival of the corporate debtor

11(1968) 2 WLR 924

12(2007) 8 SCC 328

13(1996) 6 SCC 651 Paragraphs-73 and 77.

14(1987) 2 SCC 720 Paragraph 4

15(1990) 3 SCC 223 Paragraphs - 47-49, 51-53, 57-58

ABCDEF

Ain the larger public interests. The intention of the Parliament was to curethe mischief that the high threshold was causing; and by reducing it,Parliament intended to encourage revival of the corporate debtor andmaximisation of the value of assets and to discourage liquidation resultingin closure of the functioning company on which many stakeholdersdepended, such as its workers. With regard to the objection to the locusBof the appellant being the former Chairman and Managing Director ofthe corporate debtor, it is contended that the same is raised for the firsttime, and in any case, cannot be countenanced in view of the expressprovision contained in Section 61 of the I&B Code and moreso becausethe appellant had initiated proceedings by filing an application before theCadjudicating authority (NCLT) and the appellant, being the shareholder,had reason to insist for revival of the corporate debtor instead of itsliquidation. As regards the objection about the eligibility of the appellantas person acting jointly or in concert with the corporate debtor in termsof Section 29A of the I&B Code, it is contended that even this objectionwas being taken for the first time. Notably, Section 29A of the I&BDCode came into force only from 23[rd] November, 2017, and it did notexist when the resolution plan was considered by the CoC. Further, thescope of appeal preferred by the appellant was to call upon theadjudicating authority to interfere with the unreasonable rejection of theresolution plan by the dissenting financial creditors and not to propoundEan independent plan of the appellant. Thus understood, Section 29A ofthe I&B Code would have no application and in any case, if the proposedresolution plan is to be taken forward, the appellant has no causalconnection with the resolution applicant. Learned counsel submits thatthe appeal be allowed and the matter be restored to the file of theadjudicating authority (NCLT) for reconsideration of the proposedFresolution plan afresh.

12. Mr. Colin Gonsalves, learned Senior Counsel appearing forthe workers’ union concerning corporate debtor (IIL) submits that therejection of the plan would have direct impact on the workers engaged

by the corporate debtor. According to him, the resolution plan manifestsGthat the company is viable company and all efforts should be made torevive the company and not to shove it into liquidation because of thewhims and fancies of the minority financial creditors or, for that matter,in the guise of their commercial wisdom. Reliance is placed on UnitedBank of India, Calcutta vs. Abhijit Tea Co. Pvt. Ltd. and Others[16]H16(2000) 7 SCC 357 Paragraph 20.

and Karan Singh and Others vs. Bhagwan Singh (Dead) By Lrs.And Others[17]and additionally, on the decision of the NCLAT in thecase of another corporate debtor (Alok Employees Benefit and WelfareTrust) in Company Appeal (AT) (Insolvency) No.344 of 2018 decidedon 29[th] November, 2018. He had also invited our attention to the chartgiven in Economic Survey 2017-18 Volume 2, to contend that there willbe hardly any impact if this Court was to remit the case for reconsiderationon the basis of the amended provisions by the adjudicating authority(NCLT) and especially because there is ample material on record toindicate that the corporate debtor (IIL) is viable company and needs tobe revived and not liquidated.13. On the other hand, Mr. Shyam Divan, learned Senior Counseland Ms. Pragya Baghel countered the above submissions and supportedthe conclusion reached by the NCLAT that the requirement specified inSection 30(4) of the I&B Code is mandatory. They submit that the I&BCode has been enacted after the experience of the earlier dispensations.There has been paradigm shift in adopting the new regime regarding thetimelines to be observed by all concerned at every stage as predicated inthe Code. Be it for the resolution process or liquidation process. Boththese processes are intended to be disposed of speedily and in time-bound manner. The initial time limit provided to revive the company is180 days from the date of admission of the petition and extendable by 90days. The outer limit for resolution process has been specified as 270days and if the resolution plan is not approved by the CoC with requisitenumber of votes of the financial creditors (not less than of 75%), thenthere is no other option but to order liquidation. That is the inevitableconsequence of failure to approve the resolution plan within the specifiedtime. The adjudicating authority (NCLT) would have no other option.Further, on presentation of the rejected resolution plan, it is not open tothe adjudicating authority (NCLT) to enquire into the justness of thereason or the commercial decision taken by the financial creditors toapprove or not to approve the proposed resolution plan. There is completeautonomy regarding the commercial decision or wisdom of the financialcreditors. That cannot be questioned by the adjudicating authority(NCLT). Whereas, the judicial review is circumscribed to the groundsspecified in the Act itself, which is self-contained Code. The legislativeintent makes it amply clear that the Parliament was conscious about thefact that some business entities will fail and cannot be revived within the

Aspecified time but that cannot suppress the need for addressing the seriousconcern of financial creditors due to increasing financial pressure onthem because of non-performing assets of the corporate debtor. Thepromoters have no divine right to continue to manage such corporatedebtor. The I&B Code predicates the necessity of interest in themanagement of such corporate debtors being handed over to professionalsBduring the moratorium period so as to make sincere effort to revive thecompany within the specified time. Our attention was invited toBankruptcy Law Reforms Committee Report dated 4[th] November, 2015and Insolvency Law Committee Report dated 26[th] March, 2018, to buttressthe argument about the legislative intent behind the enactment of theCI&B Code and the concerned amendment. Reliance has been placed onInnoventive Industries Ltd. (supra), which had adverted to the legislativeintent behind the I&B Code.14. Mr. Divan, appearing for ICICI Bank in the case of corporatedebtor (IIL), submits that there was only one resolution plan. NeitherDhas the resolution applicant challenged the decision of the adjudicatingauthority (NCLT) nor has it been made party in the appeal. Theoutstanding amount payable by the corporate debtor (IIL) is aroundRs.1435 Crore. He submits that the resolution plan is complex documentunlike bid or tender document. The professionals associated with thedissenting financial creditors have analysed the same and were of theEconsidered opinion that it is not feasible and achievable target - ratherit is speculative proposal. The dissenting financial creditors exercisedtheir commercial wisdom after taking into account all the relevant aspects.It is not open to undertake scrutiny of that decision of the dissentingfinancial creditors. Neither can the IRP nor the adjudicating authorityF(NCLT) be allowed to sit over the same as court of appeal. The decisionof the dissenting financial creditors reckons various aspects includingthe confidence about the capacity of the resolution applicant to translatethe projected plan into reality as per the timelines specified and thefeasibility and viability of the proposal and revival of the company in

question. He took us through the relevant provisions including amendedGprovisions and contended that the purpose and intent underlying theamendment was to give prospective effect thereto. He submitted thatthe appeal filed by the former Chairman and Managing Director of thecorporate debtor (IIL) was not maintainable also because the saidappellant has no locus. He submitted that the appellant was acting inHconcert with the resolution applicant and for which the appellant must

be called upon to first deposit 100% of the dues. Our attention is invitedto the recent decision in Arcelormittal India Private Limited vs. SatishKumar Gupta and Others[18]. He submits that the Court has noticed thenecessity of observing timelines by all concerned - be it at the stage ofresolution process or liquidation process - in terms of the mandate in theI&B Code. The amendments cannot be construed otherwise so as torender the legislative intent otiose. He submits that, in law, there is apresumption of prospective application of the amended provisions. Thereis no express provision ordaining retrospective application of the amendedprovisions. The amended provisions unambiguously predicate that thesame would come into force with effect from the stated date. In thepresent case, the timeline for completion of the resolution process expiredon 14[th] November, 2017, and for which reason the amended provisionlowering the voting share to 66% will be of no avail. As regards theamendment 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, wouldnot vitiate the concluded cause of action upon exercising the vote toreject the proposed resolution plan. That position cannot be unsettled onthe basis of the amended regulation. Learned counsel has placed relianceon the case of Karnataka State Industrial Investment & DevelopmentCorpn. Ltd. vs. Cavalet India Ltd. and Others.[19]. As regards theconcern expressed by the workers union of the corporate debtor (IIL), itis submitted that the workmen would get the highest priority in terms ofSection 53 of the I&B Code. Moreover, the fact that the liquidationprocess has been initiated in respect of the company does not mean thatthe possibility of sale of the company as running concern has beencompletely ruled out. Thus, the interests of the workers engaged by thecorporate 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 appellantsand recorded the factum of rejection of the proposed resolution planwith the inevitable direction to initiate process for liquidation of thecompany 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 inthe case of corporate debtor (KS&PIPL), having voting share of 15.15%and being one of the dissenting financial creditors, would submit that the

18(2018) SCC Online 1733, Paragraphs 64, 78, 83 and 88

19(2005) 4 SCC 456 Paragraphs 13 and 19

ABCDEF

Aappellant was disqualified to appeal and that his appeal before NCLATwas limited to the observation regarding the personal guarantee as notedby the NCLT. The fact remains that the resolution plan put to vote didnot garner support of the requisite percentage of financial creditors tothe extent of not less than 75% of the voting share. The provisions ascouched in the I&B Code do not permit computation of the voting shareBpercentage by excluding the votes of financial creditors who hadabstained. Whereas, there is express provision to the contrary, making itamply clear that the votes of the financial creditors who had abstainedfrom voting must be computed along with the votes rejecting the resolutionplan, as being dissenting financial creditors. Any other interpretation wouldCresult in re-writing Section 30(4) and the regulations framed under theI&B Code, if not doing violence to the legislative intent. She has placedreliance on the decisions of S.L. Srinivasa Jute Twine Mills (P) Ltd.vs. Union of India and Another[20]and Rajeev Chaudhary vs. State(NCT) of Delhi[21]. As regards the argument of retrospective applicationDof the amended provisions, in particular, reducing the voting share from75% to 66%, learned counsel has placed reliance on the decision of thisCourt in Hitendra Vishnu Thakur and Others vs. State of Maharashtraand Others[22]. The appellant and respondents 1-3 & 5-8 in C.A. No.10673of 2018 and appellant and respondents 2 & 20 in C.A. No.10719 of 2018Ehave filed written submissions through their counsels, elaborating theabove points.

16. Ms. Prabha Swami, appearing for the resolution applicant(Suyash Outsourcing Pvt. Ltd.), has submitted that the resolution planwas approved on certain conditions and the resolution applicant assuresFto abide by those conditions. Further, as per the liberty given to theresolution applicant, appropriate affidavit has now been filed to placethat assurance on record.

17. Ms. Mahima Singh, learned counsel appearing for the OfficialLiquidator in the case of corporate debtor (IIL), had sought liberty toGplace on record certain subsequent developments which may have bearingon the concerned appeals. That affidavit dated 23[rd] November, 2018,has also been filed and is allowed to be taken on record.

20(2006) 2 SCC 740, Paragraphs 13-19.21(2001) 5 SCC 34 Paragraphs 3 and 4.H22(1994) 4 SCC 602 Paragraph 26.

18. Having heard learned counsel for the parties, the moot questionis about the sequel of the approval of the resolution plan by the CoC ofthe respective corporate debtor, namely KS&PIPL and IIL, by vote ofless than seventy five percent of voting share of the financial creditors;and about the correctness of the view taken by the NCLAT that thepercentage of voting share of the financial creditors specified in Section30(4) of the I&B Code is mandatory. Further, is it open to the adjudicatingauthority/appellate authority to reckon any other factor (other thanspecified in Sections 30(2) or 61(3) of the I&B Code as the case maybe) which, according to the resolution applicant and the stakeholderssupporting the resolution plan, may be relevant?19. This Court in its recent decisions has elaborately adverted tothe legislative history and delineated the broad contours of the provisionsof the I&B Code. The latest being the case of Arcelormittal (supra)followed by B.K. Educational (supra) and Innoventive IndustriesLimited vs. ICICI Bank and Another.[23] In the present case, however,our focus must be on the dispensation governing the process of approvalor rejection of resolution plan by the CoC. The CoC is called upon toconsider the resolution plan under Section 30(4) of the I&B Code afterit is verified and vetted by the resolution professional as being compliantwith all the statutory requirements specified in Section 30(2).

20. The CoC is constituted as per Section 21 of the I&B Code,which consists of financial creditors. The term ‘financial creditor’ hasbeen defined in Section 5(7) of the I&B Code to mean any person towhom financial debt is owed and includes person to whom such debthas been legally assigned or transferred to. Be it noted that the processof insolvency resolution and liquidation concerning corporate debtorshas been codified in Part II of the I&B Code, comprising of sevenChapters. Chapter I predicates that Part II shall apply in matters relatingto the insolvency and liquidation of corporate debtor where the minimumamount of default is Rs.1,00,000/-. Section 5 in Chapter I is dictionaryclause specific to Part II of the Code. Chapter II deals with the gamutof procedure to be followed for the corporate insolvency resolutionprocess. For dealing with the issue on hand, the provisions contained inChapter II will be significant. From the scheme of the provisions, it isclear that the provisions in Part II of the Code are self-contained code,providing for the procedure for consideration of the resolution plan bythe CoC.23(2018) 1 SCC 407

A21. The stage at which the dispute concerning the respectivecorporate debtors (KS&PIPL and IIL) had reached the adjudicatingauthority (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 resolutionBplan by vote of not less than seventy five per cent of votingshare of the financial creditors.”

If the CoC had approved the resolution plan by requisite percentof voting share, then as per Section 30(6) of the I&B Code, it is imperativefor the resolution professional to submit the same to the adjudicatingCauthority (NCLT). On receipt of such proposal, the adjudicating authority(NCLT) is required to satisfy itself that the resolution plan as approvedby CoC meets the requirements specified in Section 30(2). No more andno less. This is explicitly spelt out in Section 31 of the I&B Code, whichread thus (as in October 2017):

D“31. Approval of resolution plan.-(1) If the AdjudicatingAuthority is satisfied that the resolution plan as approved by thecommittee of creditors under sub-section (4) of section 30 meetsthe requirements as referred to in sub-section(2) of section 30, itshall by order approve the resolution plan which shall be bindingon the corporate debtor and its employees, members, creditors,Eguarantors and other stakeholders involved in the resolution plan.

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

(3) After the order of approval under sub-section (1),-F(a) the moratorium order passed by the Adjudicating Authorityunder section 14 shall cease to have effect; and

(b) the resolution professional shall forward all records relatingto the conduct of the corporate insolvency resolution processGand the resolution plan to the Board to be recorded on itsdatabase.”

We may also usefully refer to Section 30(2) as applicable at the relevanttime. The same read thus:

“30. Submission of resolution plan.-

(1)xxxxxxxxx

(2)The resolution professional shall examine each resolutionplan received by him to confirm that each resolution plan-

(a) provides for the payment of insolvency resolutionprocess costs in manner specified by the Board in priorityto the repayment of other debts of the corporate debtor;

(b) provides for the repayment of the debts of operationalcreditors in such manner as may be specified by the Boardwhich shall not be less than the amount to be paid to theoperational creditors in the event of liquidation of thecorporate debtor under section 53;

(c) provides for the management of the affairs of theCorporate 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 forthe time being in force;

(f)conforms to such other requirements as may be specifiedby the Board.

xxxxxx

xxx”

22. In Innoventive Industries Limited (supra), the Court, afteranalysing the historical background in which the Code was enacted,opined that one of the most important objectives of the Code was tobring the insolvency law in India under single, unified umbrella with theobject of speeding up the insolvency process. As regards the processregarding submission of resolution plan and, in particular, in reference toSection 30, the Court observed as follows:

“33. Under Section 30, any person who is interested in puttingthe corporate body back on its feet may submit resolution planto the resolution professional, which is prepared on the basis ofan information memorandum. This plan must provide for paymentof insolvency resolution process costs, management of the affairsof the corporate debtor after approval of the plan, andimplementation and supervision of the plan. It is only whensuch plan is approved by vote of not less than 75% of

Athe voting share of the financial creditors and theadjudicating authority is satisfied that the plan, asapproved, meets the statutory requirements mentionedin Section 30, that it ultimately approves such plan, whichis then binding on the corporate debtor as well as itsemployees, members, creditors, guarantors and otherBstakeholders. Importantly, and this is major departure fromprevious legislation on the subject, the moment the adjudicatingauthority approves the resolution plan, the moratorium orderpassed by the authority under Section 14 shall cease to haveeffect. The scheme of the Code, therefore, is to make an attempt,Cby divesting the erstwhile management of its powers and vestingit in professional agency, to continue the business of thecorporate body as going concern until resolution plan is drawnup, in which event the management is handed over under theplan so that the corporate body is able to pay back its debts andget back on its feet. All this is to be done within period ofD6 months with maximum extension of another 90 days orelse the chopper comes down and the liquidation processbegins.”

(emphasis supplied)

The Court, however, was not called upon to deal with the specific issueEthat is being considered in the present cases namely, the scope of judicialreview by the adjudicatory authority in relation to the opinion expressedby the CoC on the proposal for approval of the resolution plan.

23. In Arcelormittal (supra), the Court adverted to the timelinesspecified in the Code and the consequences thereof in paragraphs 73Fand 74, which read thus:

“73. The time limit for completion of the insolvency resolutionprocess is laid down in Section 12. period of 180 days from thedate of admission of the application is given by Section 12(1).This is extendable by maximum period of 90 days only if theGCommittee of Creditors, by vote of 66%, votes to extend thesaid period, and only if the Adjudicating Authority is satisfiedthat such process cannot be completed within 180 days. Theauthority may then, by order, extend the duration of such processby maximum period of 90 days (see Sections 12(2) and 12(3)).What is also of importance is the proviso to Section 12(3) whichH

states that any extension of the period Under Section 12 cannotbe granted more than once. This has to be read with the thirdproviso to Section 30(4), which states that the maximum periodof 30 days mentioned in the second proviso is allowable as theonly exception to the extension of the aforesaid period not beinggranted more than once.

74. What is important to note is that consequence isprovided, in the event that the said period ends eitherwithout receipt of resolution plan or after rejection of aresolution plan under Section 31. This consequence isprovided by Section 33, which makes it clear that wheneither of these two contingencies occurs, the corporatedebtor is required to be liquidated in the manner laid downin Chapter III. Section 12, construed in the light of theobject sought to be achieved by the Code, and in the lightof the consequence provided by Section 33, therefore,makes it clear that the periods previously mentioned aremandatory and cannot be extended.”

(emphasis supplied)

And again, while dealing with the purport of Sections 30, 33 and 61 inparagraph 76, it is observed thus:

“76. ……………………

(viii) Section 30 is an important provision in that resolutionapplicant may submit resolution plan to the ResolutionProfessional, who is then to examine the said plan to see that itconforms to the requirements of Section 30(2). Once this planconforms to such requirements, the plan is then to be presentedto the Committee of Creditors for its approval under Section30(3). This can then be approved by the Committee of Creditorsby vote of not less than 66% under Sub-section (4). What isimportant to note is that the Committee of Creditors shall notapprove resolution plan where the resolution applicant isineligible under Section 29A, and may require the ResolutionProfessional to invite fresh resolution plan where no otherresolution plan is available. Once approved by the Committee ofCreditors, the resolution plan is to be submitted to the AdjudicatingAuthority under Section 31 of the Code. It is at this stage that

ABC

Aa judicial mind is applied by the Adjudicating Authority tothe resolution plan so submitted, who then, after beingsatisfied that the plan meets (or does not meet) therequirements mentioned in Section 30, may either approveor reject such plan.

B(ix) An appeal from an order approving such plan is onlyon the limited grounds laid down in Section 61(3).However, an appeal from an order rejecting resolutionplan would also lie under Section 61.

(x) As has been stated hereinbefore, the liquidationCprocess gets initiated under Section 33 if, (1) either noresolution plan is submitted within the time specified underSection 12, or resolution plan has been rejected by theAdjudicating Authority; (2) where the ResolutionProfessional, before confirmation of the resolution plan,intimates the Adjudicating Authority of the decision of theDCommittee of Creditors to liquidate the corporate debtor;or (3) where the resolution plan approved by theAdjudicating Authority is contravened by the concernedcorporate debtor. Any person other than the corporatedebtor whose interests are prejudicially affected by suchEcontravention may apply to the Adjudicating Authority, whomay then pass liquidation order on such application.”

(emphasis supplied)

24. Notably, the resolution plan concerning both the corporatedebtors, namely KS&PIPL and IIL was considered by the concernedFCoC in October 2017, and was approved by less than 75% of votingshare of the financial creditors. The inevitable consequences thereofare to treat the proposed resolution plan as disapproved or deemed to berejected by the dissenting financial creditors. The expression ‘dissentingfinancial creditors, is defined in Regulation 2(1)(f) of The Insolvencyand Bankruptcy Board of India (Insolvency Resolution Process forGCorporate Persons) Regulations, 2016, to mean the financial creditorswho voted against the resolution plan approved by the Committee. Thisdefinition came to be amended subsequently w.e.f. 01.01.2018 to meanthe financial creditors who voted against the resolution plan or abstainedfrom 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 heldon 27[th] October, 2017, could garner approval of only 55.73% of votingshare of the financial creditors and even if the subsequent approvalaccorded by email (by 10.94%) is taken into account, it did not fulfill therequisite vote of not less than 75% of voting share of the financialcreditors. On the other hand, the resolution plan was expressly rejectedby 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% ofvoting share of the financial creditors. In such case, the resolutionprofessional was under no obligation to submit the resolution plan underSection 30(6) of the I&B Code to the adjudicating authority. Instead, itwas case to be proceeded by the adjudicating authority under Section33(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 ofthe financial creditors and 33.43% voted against the resolution plan.This being the indisputable position, NCLAT opined that the resolutionplan was deemed to be rejected by the CoC and the concomitant is toinitiate liquidation process concerning the two corporate debtors.26. According to the resolution applicant and the stakeholderssupporting the concerned resolution plan in respect of the two corporatedebtors, the stipulation in Section 30(4) of the I&B Code as applicable atthe relevant time in October 2017 is only directory and not mandatory.This argument is founded on the expression “may” occurring in Section30(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 approvethe resolution plan or not to approve the same. What is significant is thesecond part of the said provision, which stipulates the requisite thresholdof “not less than seventy five percent of voting share of the financialcreditors” to treat the resolution plan as duly approved by the CoC. Thatstipulation is the quintessence and made mandatory for approval of theresolution plan. Any other interpretation would result in rewriting of theprovision and doing violence to the legislative intent.

27. It was then contended that the amendment vide Insolvencyand Bankruptcy Code Amendment Act, 2018 (Act No.8 of 2018, dated18[th] January, 2018) w.e.f. 23[rd] November, 2017 was to substitute theamended provision, which means that the amended provision stoodincorporated as Section 30(4) from the commencement of I&B Code.

AThis argument will be dealt with little later while considering the effectof the amended provisions. For the present, we are adverting to theprovisions in the I&B Code and the regulations framed there under, aswere in force in October 2017, when the CoC of the concerned corporatedebtor was called upon to consider the proposed resolution plan.

B28. We may now take note of the provisions in the 2016 regulationsframed under the I&B Code. Chapter-VI of the regulations deals withgeneral meetings of the committee. Chapter-VII with matters relatingto voting by the committee. Chapter-VIII with the conduct of corporateinsolvency resolution process and Chapter-X with the resolution plan.As the issue under consideration is about the conduct of meeting of CoCCfor considering the proposed insolvency resolution plan, we may usefullyrefer to the dispensation delineated in Chapter-VI and VII, in particular.Regulation 18 is about the meetings of the committee to be convened bythe resolution professional when he considers necessary or upon therequisition given by the members of the committee, representing 33% ofDthe voting rights. Regulation 19 is about the notice period for conveningsuch meeting and Regulation 20 is about the service of notice byelectronic means. Regulation 21 is about the contents of the notice formeeting. Regulation 22 provides for the quorum at the meeting andRegulation 23 recognises participation of the members of committeethrough video conferencing and other audio visual means, as specifiedEtherein. In other words, the members of the committee need not participateduring voting propria persona or in person but can do so through videoconferencing or other audio or visual means. The conduct of meeting isgoverned by Regulation 24 and the method and procedure for votingduring such meeting is predicated in Regulation 25 and 26. RegulationF25 is about voting by the members of the committee present in the meetingand Regulation 26 is about the voting by either electronic means or throughelectronic voting system.

29. Be it noted, these provisions are regarding the conduct ofmeetings of the committee generally and including about the method ofGvoting during such meetings. The specific provision regarding approvalof resolution plan can be traced to Regulation 39. Regulation 39, as itwas in force at the relevant time in October 2017, read thus:

“39. Approval of resolution plan.-(1) resolution applicant shallendeavour to submit resolution plan prepared in accordanceHwith the Code and these Regulations to the resolution professional,

thirty days before expiry of the maximum period permitted undersection 12 for the completion of the corporate insolvency resolutionprocess.

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

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

(4) The resolution professional shall submit the resolution planapproved by the committee to the Adjudicating Authority with thecertification that:

(a) the contents of the resolution plan meet all the requirementsof the Code and the Regulations; and

(b) the resolution plan has been approved by the committee.

(5) The resolution professional shall forthwith send copy of theorder of the Adjudicating Authority approving or rejecting aresolution plan to the participants and the resolution applicant.

(6) provision in resolution plan which would otherwise requirethe consent of the members or partners of the corporate debtor,as the case may be, under the terms of the constitutionaldocuments of the corporate debtor, shareholders’ agreement, jointventure agreement or other document of similar nature, shalltake effect notwithstanding that such consent has not beenobtained.

(7) No proceedings shall be initiated against the interim resolutionprofessional or the resolution professional, as the case may be,for any actions of the corporate debtor, prior to the insolvencycommencement date.

(8) person in charge of the management or control of the businessand operations of the corporate debtor after resolution plan isapproved by the Adjudicating Authority, may make an applicationto the Adjudicating Authority for an order seeking the assistanceof the local district administration in implementing the terms of aresolution plan.”

On conjoint reading of these provisions it is amply clear that thestipulation is to reckon the percent of “voting share of the financialcreditors”, for the purposes of determining as to whether the proposedresolution plan has been approved by the CoC or otherwise. When itcomes to the method of voting and for determining the outcome of votingwith regard to other subjects (other than the approval of the resolutionBplan), discussed in the meeting of the CoC, the same is governed byRegulation 25 as applicable in October 2017. The same read thus:

“25. Voting by the committee.-(1) the actions listed in section28(1) shall be considered in meetings of the committee.

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

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

(4) At the conclusion of vote at the meeting, the resolutionprofessional shall announce the decision taken on itemsalong with the names of the members of the committee whovoted for or against the decision, or abstained from voting.

E(5) If all members are not present at meeting, vote shallnot be taken at such meeting and the resolution professionalshall-

(a) circulate the minutes of the meeting by electronicmeans to all members of the committee within forty-eightFhours of the conclusion of the meeting; and

(b) seek vote on the matters listed for voting in themeeting, by electronic voting system where the votingshall be kept open for twenty four hours from thecirculation of the minutes.”

(emphasis supplied)

Concededly, Regulations 25 and 39 must be read in light of Section30(4) of the I&B Code, concerning the process of approval of resolutionplan. For that, the “percent of voting share of the financial creditors”approving vis-à-vis dissenting - is required to be reckoned. It is not on

the basis of members present and voting as such. At any rate, theapproving votes must fulfill the threshold percent of voting share of thefinancial creditors. Keeping this clear distinction in mind, it must followthat the resolution plan concerning the respective corporate debtors,namely, KS&PIPL and IIL, is deemed to have been rejected as it hadfailed to muster the approval of requisite threshold votes, of not less than75% of voting share of the financial creditors. It is not possible tocountenance any other construction or interpretation, which may runcontrary to what has been noted herein before.

30. Thus understood, no fault can be found with the NCLAT forhaving recorded the fact that the proposed resolution plan in respect ofboth the corporate debtors was approved by vote of “less than 75%” ofvoting share of the financial creditors or deemed to have been rejected.In that event, the inevitable corollary is to initiate liquidation processrelating to the concerned corporate debtor, as per Section 33 of the I&BCode.

31. Indeed, in terms of Section 31 of the I&B Code, theadjudicating authority (NCLT) is expected to deal with two situations.The first is when it does not receive resolution plan under sub-section(6) of Section 30 or when the resolution plan has been rejected by theresolution professional for non-compliance of Section 30(2) of the I&BCode or also when the resolution plan fails to garner approval of not lessthan seventy five percent of voting share of the financial creditors, asthe case may be; and there is no alternate plan mooted before the expiryof the statutory period. The second is when resolution plan duly approvedby the CoC by not less than 75% of voting share of the financial creditorsis 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 situation wherein both the resolution processes under consideration, the resolution planfailed to garner support of not less than 75% of voting share of thefinancial creditors. That is the first category referred to above. In sucha situation, the adjudicating authority can have no other option but toinitiate 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 October2017, read thus:

A“33. Initiation of liquidation.-(1) Where the AdjudicatingAuthority,-

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

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

CIt shall-

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

(ii) issue public announcement stating that the corporatedebtor is in liquidation; and

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

(2) Where the resolution professional, at any time during thecorporate insolvency resolution process but before confirmationof resolution plan, intimates the Adjudicating Authority of thedecision of the committee of creditors to liquidate the corporatedebtor, the Adjudicating Authority shall pass liquidation order asreferred to in sub-clauses (i) (ii) and (iii) of clause (b) of sub-section (1).

(3) Where the resolution plan approved by the AdjudicatingAuthority is contravened by the concerned corporate debtor, anyperson other than the corporate debtor, whose interests areprejudicially affected by such contravention, may make anapplication to the Adjudicating Authority for liquidation order asreferred to in sub-clauses (i), (ii) and (iii) of clause (b) of sub-section (1).

(4) On receipt of an application under sub-section (3), if theAdjudicating Authority determines that the corporate debtor hascontravened the provisions of the resolution plan, it shall pass aliquidation order as referred to in sub-clauses (i), (ii) and (iii) ofclause (b) of sub-section (1).

(5) Subject to section 52, when liquidation order has been passed,no suit or other legal proceeding shall be instituted by or againstthe corporate debtor:

Provided that suit or other legal proceeding may be institutedby the liquidator, on behalf of the corporate debtor, with the priorapproval of the Adjudicating Authority.

(6) The provisions of sub-section (5) shall not apply to legalproceedings in relation to such transactions as may be notified bythe Central Government in consultation with any financial sectorregulator.

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

33. As aforesaid, upon receipt of “rejected” resolution plan theadjudicating authority (NCLT) is not expected to do anything more; butis obligated to initiate liquidation process under Section 33(1) of the I&BCode. The legislature has not endowed the adjudicating authority (NCLT)with the jurisdiction or authority to analyse or evaluate the commercialdecision of the CoC muchless to enquire into the justness of the rejectionof the resolution plan by the dissenting financial creditors. From thelegislative history and the background in which the I&B Code has beenenacted, it is noticed that completely new approach has been adoptedfor speeding up the recovery of the debt due from the defaultingcompanies. In the new approach, there is calm period followed by aswift resolution process to be completed within 270 days (outer limit)failing which, initiation of liquidation process has been made inevitableand mandatory. In the earlier regime, the corporate debtor couldindefinitely continue to enjoy the protection given under Section 22 ofSick Industrial Companies Act, 1985 or under other such enactmentswhich has now been forsaken. Besides, the commercial wisdom of theCoC has been given paramount status without any judicial intervention,for ensuring completion of the stated processes within the timelinesprescribed by the I&B Code. There is an intrinsic assumption that financialcreditors are fully informed about the viability of the corporate debtorand feasibility of the proposed resolution plan. They act on the basis ofthorough examination of the proposed resolution plan and assessmentmade by their team of experts. The opinion on the subject matter

Aexpressed by them after due deliberations in the CoC meetings throughvoting, as per voting shares, is collective business decision. Thelegislature, consciously, has not provided any ground to challenge the“commercial wisdom” of the individual financial creditors or theircollective decision before the adjudicating authority. That is made non-justiciable.B

34. In the report of the Bankruptcy Law Reforms Committee ofNovember 2015, primacy has been given to the CoC to evaluate thevarious possibilities and make decision. It has been observed thus:

“The key economic question in the bankruptcy processCWhen firm (referred to as the corporate debtor in the draft law)defaults, the question arises about what is to be done. Manypossibilities can be envisioned. One possibility is to takethe firm into liquidation. Another possibility is to negotiatea debt restructuring, where the creditors accept reductionDof debt on an NPV basis, and hope that the negotiated valueexceeds the liquidation value. Another possibility is to sellthe firm as going concern and use the proceeds to paycreditors. Many hybrid structures of these broad categoriescan be envisioned.

EThe Committee believes that there is only one correct forumfor evaluating such possibilities, and making decision: acreditors committee, where all financial creditors have votesin proportion to the magnitude of debt that they hold. In thepast, laws in India have brought arms of the Government(legislature, executive or judiciary) into this question. ThisFhas been strictly avoided by the Committee. The appropriatedisposition of defaulting firm is business decision, and”only the creditors should make it.

(emphasis supplied)

The report also highlights that having timelines is the essence ofGthe resolution process. It then refers to the principles driving the designof the new insolvency bankruptcy resolution frame work. While dealingwith this aspect, it is noted that the Code would facilitate the assessmentof the viability of the enterprise at very early stage. The relevant extractof the report reads thus:H

“Principles driving the design

The Committee chose the following principles to designthe new insolvency and bankruptcy resolution framework:I. The Code will facilitate the assessment of viability of theenterprise at very early stage.

(1) The law must explicitly state that the viability of theenterprise is matter of business, and that matters ofbusiness can only be negotiated between creditors anddebtor. While viability is assessed as negotiation betweencreditors and debtor, the final decision has to be anagreement among creditors who are the financiers willingto bear the loss in the insolvency.

(2) The legislature and the courts must control the processof resolution, but not be burdened to make businessdecisions.

(3) The law must set up calm period for insolvency resolutionwhere the debtor can negotiate in the assessment of viabilitywithout fear of debt recovery enforcement by creditors.

(4) The law must appoint resolution professional as the managerof the resolution period, so that the creditors can negotiate theassessment of viability with the confidence that the debtors willnot take any action to erode the value of the enterprise. Theprofessional will have the power and responsibility to monitor andmanage the operations and assets of the enterprise. Theprofessional will manage the resolution process of negotiation toensure balance of power between the creditors and debtor, andprotect the rights of all creditors. The professional will ensure thereduction of asymmetry of information between creditors anddebtor in the resolution process.

……………………

IV. The Code will ensure collective process.

(9) The law must ensure that all key stakeholders willparticipate to collectively assess viability. The law must ensurethat all creditors who have the capability and the willingness torestructure their liabilities must be part of the negotiation process.

AThe liabilities of all creditors who are not part of the negotiationprocess must also be met in any negotiated solution.

V. The Code will respect the rights of all creditors equally.(10) The law must be impartial to the type of creditor in countingtheir weight in the vote on the final solution in resolving insolvency.BVI. The Code must ensure that, when the negotiations fail toestablish viability, the outcome of bankruptcy must be binding.

(11) The law must order the liquidation of an enterprise which hasbeen found unviable. This outcome of the negotiations should beCprotected 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 planD“as approved” by the requisite percent of voting share of financialcreditors. Even in that enquiry, the grounds on which the adjudicatingauthority can reject the resolution plan is in reference to matters specifiedin Section 30(2), when the resolution plan does not conform to the statedrequirements. Reverting to Section 30(2), the enquiry to be done is inErespect of whether the resolution plan provides : (i) the payment ofinsolvency resolution process costs in specified manner in priority tothe repayment of other debts of the corporate debtor, (ii) the repaymentof the debts of operational creditors in prescribed manner, (iii) themanagement of the affairs of the corporate debtor, (iv) the implementationand supervision of the resolution plan, (v) does not contravene any ofFthe provisions of the law for the time being in force, (vi) conforms tosuch other requirements as may be specified by the Board. The Boardreferred to is established under Section 188 of the I&B Code. The powersand functions of the Board have been delineated in Section 196 of theI&B Code. None of the specified functions of the Board, directly orGindirectly, pertain to regulating the manner in which the financial creditorsought to or ought not to exercise their commercial wisdom during thevoting on the resolution plan under Section 30(4) of the I&B Code. Thesubjective satisfaction of the financial creditors at the time of voting isbound to be mixed baggage of variety of factors. To wit, the feasibilityand viability of the proposed resolution plan and including their perceptionsH

about the general capability of the resolution applicant to translate theprojected plan into reality. The resolution applicant may have givenprojections backed by normative data but still in the opinion of thedissenting financial creditors, it would not be free from being speculative.These aspects are completely within the domain of the financial creditorswho are called upon to vote on the resolution plan under Section 30(4) ofthe I&B Code.

36. For the same reason, even the jurisdiction of the NCLATbeing in continuation of the proceedings would be circumscribed in thatregard and more particularly on account of Section 32 of the I&B Code,which envisages that any appeal from an order approving the resolutionplan 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) Notwithstandinganything to the contrary contained under the Companies Act, 2013(18 of 2013), any person aggrieved by the order of the AdjudicatingDAuthority under this part may prefer an appeal to the NationalCompany Law Appellate Tribunal.

(2)xxxxxxxxx

(3) An appeal against an order approving resolution plan undersection 31 may be filed on the following grounds, namely:-

(i) the approved resolution plan is in contravention of theprovisions of any law for the time being in force;

(ii) there has been material irregularity in exercise of the powersby the resolution professional during the corporate insolvencyresolution period;

(iii) the debts owed to operational creditors of the corporatedebtor have not been provided for in the resolution plan in themanner specified by the Board;

(iv) the insolvency resolution process costs have not beenprovided for repayment in priority to all other debts; or

(v) the resolution plan does not comply with any other criteriaspecified by the Board.

xxxxxx.”

A37. On bare reading of the provisions of the I&B Code, it wouldappear that the remedy of appeal under Section 61(1) is against an “orderpassed by the adjudicating authority (NCLT)” – which we will assumemay also pertain to recording of the fact that the proposed resolutionplan has been rejected or not approved by vote of not less than 75% ofvoting share of the financial creditors. Indubitably, the remedy of appealBincluding the width of jurisdiction of the appellate authority and the groundsof appeal, is creature of statute. The provisions investing jurisdictionand authority in the NCLT or NCLAT as noticed earlier, has not madethe commercial decision exercised by the CoC of not approving theresolution plan or rejecting the same, justiciable. This position is reinforcedCfrom the limited grounds specified for instituting an appeal that too againstan order “approving resolution plan” under Section 31. First, that theapproved resolution plan is in contravention of the provisions of any lawfor the time being in force. Second, there has been material irregularityin exercise of powers “by the resolution professional” during the corporateinsolvency resolution period. Third, the debts owed to operational creditorsDhave not been provided for in the resolution plan in the prescribed manner.Fourth, the insolvency resolution plan costs have not been provided forrepayment in priority to all other debts. Fifth, the resolution plan does notcomply with any other criteria specified by the Board. Significantly, thematters or grounds - be it under Section 30(2) or under Section 61(3) ofEthe I&B Code - are regarding testing the validity of the “approved”resolution plan by the CoC; and not for approving the resolution planwhich has been disapproved or deemed to have been rejected by theCoC in exercise of its business decision.

38. Indubitably, the inquiry in such an appeal would be limited toFthe power exercisable by the resolution professional under Section 30(2)of the I&B Code or, at best, by the adjudicating authority (NCLT) underSection 31(2) read with 31(1) of the I&B Code. No other inquiry wouldbe permissible. Further, the jurisdiction bestowed upon the appellateauthority (NCLAT) is also expressly circumscribed. It can examine thechallenge only in relation to the grounds specified in Section 61(3) of theGI&B Code, which is limited to matters “other than” enquiry into theautonomy or commercial wisdom of the dissenting financial creditors.Thus, the prescribed authorities (NCLT/NCLAT) have been endowedwith limited jurisdiction as specified in the I&B Code and not to act as acourt of equity or exercise plenary powers.

39. In our view, neither the adjudicating authority (NCLT) nor theappellate authority (NCLAT) has been endowed with the jurisdiction toreverse the commercial wisdom of the dissenting financial creditors andthat too on the specious ground that it is only an opinion of the minorityfinancial creditors. The fact that substantial or majority percent of financialcreditors have accorded approval to the resolution plan would be of noavail, unless the approval is by vote of not less than 75% (afteramendment of 2018 w.e.f. 06.06.2018, 66%) of voting share of thefinancial creditors. To put it differently, the action of liquidation processpostulated in Chapter-III of the I&B Code, is avoidable, only if approvalof the resolution plan is by vote of not less than 75% (as in October,2017) of voting share of the financial creditors. Conversely, the legislativeintent is to uphold the opinion or hypothesis of the minority dissentingfinancial creditors. That must prevail, if it is not less than the specifiedpercent (25% in October, 2017; and now after the amendment w.e.f.06.06.2018, 44%). The inevitable outcome of voting by not less thanrequisite percent of voting share of financial creditors to disapprove theproposed resolution plan, de jure, entails in its deemed rejection.

40. Notably, the threshold of voting share of the dissenting financialcreditors for rejecting the resolution plan is way below the simple majoritymark, 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 topass through the litmus test of not less than requisite (75% or 66% asmay be applicable) of voting share - strict regime. That means theresolution plan must appear, to not less than requisite voting share of thefinancial creditors, to be an overall credible plan, capable of achievingtimelines specified in the Code generally, assuring successful revival ofthe corporate debtor and disavowing endless speculation.

41. The counsel appearing for the resolution applicant and thestakeholders supporting the resolution plan of the concerned corporatedebtor, were at pains to persuade us to take view that voting by thedissenting financial creditors suffers from the vice of being unreasonable,irrational, unintelligible and an abuse of exercise of power. The powerbestowed on the financial creditors to cast their vote under Section 30(4)is coupled with duty to exercise that power with utmost care, cautionand reason, keeping in mind the legislative intent and the spirit of theI&B Code - fullest attempt should be made to revive the corporate debtorsand not to mechanically shove them to the brink of liquidation process,

Awhich has the inevitable impact on larger public interests and thestakeholders in particular, including workers associated with the company.

42. The argument, though attractive at the first blush, but ifaccepted, would require us to re-write the provisions of the I&B Code.It would also result in doing violence to the legislative intent of havingBconsciously not stipulated that as ground - to challenge the commercialwisdom of the minority (dissenting) financial creditors. Concededly, theprocess of resolution plan is necessitated in respect of corporate debtorsin whom their financial creditors have lost hope of recovery and whohave turned into non-performer or chronic defaulter. The fact that theconcerned corporate debtor was still able to carry on its business activitiesCdoes not obligate the financial creditors to postpone the recovery of thedebt due or to prolong their losses indefinitely. Be that as it may, thescope of enquiry and the grounds on which the decision of “approval” ofthe resolution plan by the CoC can be interfered with by the adjudicatingauthority (NCLT), has been set out in Section 31(1) read with SectionD30(2) and by the appellate tribunal (NCLAT) under Section 32 read withSection 61(3) of the I&B Code. No corresponding provision has beenenvisaged by the legislature to empower the resolution professional, theadjudicating authority (NCLT) or for that matter the appellate authority(NCLAT), to reverse the “commercial decision” of the CoC muchlessof the dissenting financial creditors for not supporting the proposedEresolution plan. Whereas, from the legislative history there is contraindication that the commercial or business decisions of the financialcreditors are not open to any judicial review by the adjudicating authorityor the appellate authority.

43. It was argued that the dissenting financial creditors have notFassigned any reason for recording their dissent and therefore, their actionis vitiated. As per the provisions applicable at the relevant time in October2017, there was no requirement of recording reasons for the dissent.That requirement has been introduced by an amendment to the regulationseffected in 2018 w.e.f. 4[th] July, 2018. Whether that amendment isGprospective or has retrospective effect is matter which will beconsidered little later.

44. Suffice it to observe that in the I&B Code and the regulationsframed thereunder as applicable in October 2017, there was no need forthe dissenting financial creditors to record reasons for disapproving orHrejecting 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 financialcreditors in rejecting the proposed resolution plan or to engage in judicialreview thereof. Concededly, the inquiry by the resolution professionalprecedes the consideration of the resolution plan by the CoC. Theresolution professional is not required to express his opinion on matterswithin the domain of the financial creditor(s), to approve or reject theresolution plan, under Section 30(4) of the I&B Code. At best, theAdjudicating Authority (NCLT) may cause an enquiry into the “approved”resolution plan on limited grounds referred to in Section 30(2) read withSection 31(1) of the I&B Code. It cannot make any other inquiry nor iscompetent to issue any direction in relation to the exercise of commercialwisdom of the financial creditors - be it for approving, rejecting orabstaining, as the case may be. Even the inquiry before the AppellateAuthority (NCLAT) is limited to the grounds under Section 61(3) of theI&B Code. It does not postulate jurisdiction to undertake scrutiny of thejustness of the opinion expressed by financial creditors at the time ofvoting. To take any other view would enable even the minority dissentingfinancial creditors to question the logic or justness of the commercialopinion expressed by the majority of the financial creditors albeit byrequisite percent of voting share to approve the resolution plan; and inthe process authorize the adjudicating authority to reject the approvedresolution plan upon accepting such challenge. That is not the scope ofjurisdiction vested in the adjudicating authority under Section 31 of theI&B Code dealing with approval of the resolution plan.

45. To put it differently, since none of the grounds available underSection 30(2) or Section 61(3) of the I&B Code are attracted in the factsituation of the present case, the Adjudicating Authority (NCLT) as wellas the Appellate Authority (NCLAT) had no other option but to recordthat the proposed resolution plan concerning the respective corporatedebtor (KS&PIPL and IIL) stood rejected. Further, as no alternativeresolution plan was approved by the requisite percent of voting share ofthe financial creditors before the expiry of the statutory period of 270days, the inevitable sequel is to pass an order directing initiation ofliquidation process against the concerned corporate debtor in the mannerspecified in Chapter III of the I&B Code.

46. Realising this position, the resolution applicant and thestakeholders supporting the proposed resolution plan of the concerned

CDE

Acorporate debtors, would contend that the NCLAT has failed to giveeffect to the amended provisions which came into effect from 23[rd] dayof November, 2017 and the second amendment from 6[th] June, 2018 toSection 30(4) of the I&B Code in particular. According to them, the saidamendment ought to be given retrospective effect and in any case, beingretroactive in nature, ought to govern the proceedings before the NCLATBwhere the appeal was pending for consideration. For considering thissubmission, we may advert to the Insolvency and Bankruptcy Code(Amendment) Act, 2017 (No.8 of 2018) which is deemed to have comeinto force on the 23[rd] day of November, 2017. Section 6 of this Actpurports to substitute Section 30(4) of the principal Act. The amendedCsub-section (4) reads thus:

“6. In section 30 of the principal Act, for sub-section (4), thefollowing sub-section shall be substituted, namely:-

(4) The committee of creditors may approve resolution plan bya vote of not less than seventy-five per cent. of voting share ofDthe 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 aresolution plan, submitted before the commencement of theInsolvency and Bankruptcy Code (Amendment) Ordinance, 2017,Ewhere the resolution applicant is ineligible under section 29A andmay require the resolution professional to invite fresh resolutionplan where no other resolution plan is available with it:

Provided further that where the resolution applicant referred toin the first proviso is ineligible under clause (c) of section 29A, theFresolution applicant shall be allowed by the committee of creditorssuch period, not exceeding thirty days, to make payment of overdueamounts in accordance with the proviso to clause (c) of section29A:

Provided also that nothing in the second proviso shall be construedGas extension of period for the purposes of the proviso to sub-section (3) of section 12, and the corporate insolvency resolutionprocess shall be completed within the period specified in that sub-section.”.

47. The change brought about by this amendment is insertion ofHwords “after considering its feasibility and viability, and such other

requirements as may be specified by the Board”. In addition, threeprovisos have been added to sub-section (4). For considering the issueon hand, the three provisos are not relevant. As regards the insertion ofthe above quoted words in sub-section (4), that does not alter therequirement regarding approval of resolution plan, by vote of not lessthan 75% of voting share of the financial creditors. The amendment isonly to declare that the financial creditors ought to consider the feasibilityand viability and such other requirements as may be specified by theBoard, while exercising their option on the resolution plan - to approveor not to approve the same. It is rudimentary that the financial creditors(in most cases are national Bankers), who are called upon to considerthe proposed resolution plan would take into account all the relevantmaterials, including the feasibility and viability and such other requirementsas may be specified by the Board. Additionally, the financial creditorsare also required to bear in mind that the legislative intent is to bringabout resolution and revival of the corporate debtors so as to benefit notonly the corporate debtor but also other stake-holders in equal measure.

48. Suffice it to observe that the amended provision merely restatesas to what the financial creditors are expected to bear in mind whilstexpressing their choice during consideration of the proposal for approvalof resolution plan. No more and no less. Indubitably, the legislature hasconsciously not provided for ground to challenge the justness of the“commercial decision” expressed by the financial creditors – be it toapprove or reject the resolution plan. The opinion so expressed by votingis non-justiciable. Further, in the present cases, there is nothing to indicateas to which other requirements specified by the Board at the relevanttime have not been fulfilled by the dissenting financial creditors. As notedearlier, the Board established under Section 188 of the I&B Code canperform powers and functions specified in Section 196 of the I&B Code.That does not empower the Board to specify requirements for exercisingcommercial decisions by the financial creditors in the matters of approvalof the resolution plan or liquidation process. Viewed thus, the amendmentunder consideration does not take the matter any further.49. We may not be understood to have expressed any opinioneither way about the effect of the three provisos introduced by the sameamendment to Section 30(4) - as to whether it would have retrospectiveor retroactive effect. That question does not arise for consideration inthese appeals. Our discussion is restricted to the efficacy of the

Aamendment to main provision viz., Section 30(4), whereby the abovequoted words (“after considering feasibility and viability, and such otherrequirements as may be specified by the Board”) have been inserted.

50. The learned counsel for the resolution applicant and otherstakeholders supporting the resolution plan of the concerned creditors,Bnext relied upon the amendment to Section 30(4) which has come intoforce w.e.f. 6[th] day of June, 2018 vide the Insolvency and BankruptcyCode (Second Amendment) Act, 2018 (No.8 of 2018). Vide section23(iii)(a) of the said amendment Act, the word “seventy-five” in sub-section (4) of Section 30 has been substituted by the word “sixty-six”.Taking clue from this amendment, it was argued that since the amendmentCsubstitutes the threshold requirement of 75% to 66% and since the samehas been brought into force when appeals were pending, the NCLATwas obliged to consider its effect on the present cases. Further, beingsubstitution, it must be assumed that the amended provision was alwaysthere from the beginning of the Code.

51. We are not impressed by this submission. In our opinion, bythis amendment, new norm and qualifying standard for approval of aresolution plan has been introduced. That cannot be treated as adeclaratory/clarificatory or stricto sensu procedural matter as such.Whereas, the stated Amendment Act makes it expressly clear that itEshall 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 theAmendment Act of 2018, it would not make the provision retrospectivein operation or having retroactive effect. This interpretation is reinforcedby the fact that there is no indication in the Amendment Act of 2018 thatthe legislature intended to undo and/or govern the decisions already takenFby the CoC of the concerned corporate debtors prior to 6-06-2018.

52. Our attention was invited to the report of the Insolvency LawCommittee of March, 2018. Even the said report does not mention aboutintroducing the amendment to Section 30(4), regarding the thresholdrequirement with retrospective or retroactive effect. Indeed, the reportGhas noted about the necessity to alter the low threshold level of 25% ofvoting share for rejection of the resolution plan which, it felt, should beincreased to 44%. It may be useful to reproduce paragraph 11 of thesaid report dealing with voting share threshold for decisions of the CoC,which reads thus:

“11.VOTING SHARE THRESHOLD FOR DECISIONS OFTHE COC

11.1 Section 21(8) of the Code provides that all decisions of theCoC shall be taken by vote of not less than 75 percent of thevoting share of the financial creditors. Regulation 25(5) read withregulation 26 of the CIRP Regulations provides that if all membersof the CoC are not present, an option to vote through electronicmeans must be provided.

11.2 It was represented to the Committee that the high thresholdof 75 percent of voting share of financial creditors for decisionsof the CoC was proving to be road-block in the resolution process.Effectively, as result of the high threshold, blocking the resolutionplan and other decisions of the CoC, was easier than approvingthese.

11.3 The Committee considered the fact that, so far, variousbenches of the NCLT have passed liquidation orders in 30 cases.76 Out of these 30 cases, only nine cases went into liquidation onaccount of rejection by the CoC. Further, only in one case, aliquidation order was passed owing to lack of consensus of 75percent financial creditors for approval of the resolution plan. 77In respect of the remaining eight cases, the plan was rejected byan overwhelming majority of voting share above 80 percent. Thus,empirical evidence suggests that the apprehension thatcompanies are being put into liquidation by minoritycreditors is pre-mature. The Committee reiterated that theobjective of the Code is to respect the commercial wisdomof the CoC.

11.4 The Committee noted the voting thresholds across otherstatutes and guidelines that deal/have dealt with rehabilitation ofcompanies as follows:

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

(b) Section 262 of the CA 201378 provided for scheme ofrehabilitation which required approval by (i) secured creditors

representing 75 percent in value of the debts owed by the companyto such creditors; and (ii) unsecured creditors representing 25percent in value of the amount of debt owed to them. Further, incase of voluntary winding up, section 311 of the CA 2013 providedfor replacement of the company liquidator by approval of 75 percentof creditors or 75 percent of members of the company.79

(c) The Joint Lender’s Forum (“JLF”) framework formulatedby the RBI (which has now been replaced) to enable creditors toidentify and deal with stressed assets at an early stage prescribeda voting threshold of 60 percent (reduced from 75 percent) ofcreditors by value and 50 percent (reduced from 60 percent) ofcreditors by number in the JLF, for proceeding with therestructuring of the account.80

(d) Section 13(9) of the Securitisation and Reconstruction ofFinancial Assets and Enforcement of Security Interest Act, 2002provided that in the case of financing of financial asset by morethan one secured creditors or joint financing of financial assetby secured creditors, no secured creditor would be entitled toexercise any or all of the rights conferred on her under the relevantlaw (such as taking possession of the secured asset or takeoverthe management of the borrower) unless exercise of such rightwas agreed upon by secured creditors representing not less than60 percent (reduced from 75 percent) 81 in value of the amountoutstanding as on record date and such action was binding on allthe secured creditors.11.5 The Committee also noted that globally, bankruptcy lawsprescribe different voting thresholds for decisions of the CoC. InUSA, approval of plan requires 66 percent or more voting sharein value and 50 percent or more voting share in number for eachclass of creditors.82 The position is similar in Canada, however,such requirement applies to each class of unsecured creditors.83In the UK, approval of plan under administration requires asimple majority in value of the creditors present and voting. Whilesuch threshold is higher in Singapore as the requirement therein isto obtain 75 percent or more of voting share by value and morethan 50 percent voting share in number of creditors present andvoting, for approval of the plan.84 The Committee was of theview higher threshold with the present and voting requirement,

or lower threshold sans the present and voting requirement,may be adopted.

11.6 After due deliberation and factoring in the experienceof past restructuring laws in India and international bestpractices, the Committee agreed that to further the statedobject of the Code i.e. to promote resolution, the votingshare for approval of resolution plan and other criticaldecisions may be reduced from 75 percent to 66 percentor more of the voting share of the financial creditors. Inaddition to approval of the resolution plan under section30(4), other critical decisions are extension of the CIRPbeyond 180 days under section 12(2), replacement orappointment of RP under sections 22(2) and 27(2), andpassing resolution for liquidation under section 33(2) ofthe Code. Further, for approval of the other routinedecisions for continuing the corporate debtor as goingconcern by the IRP/RP, the voting share threshold may bereduced to 51 percent or more of the voting share of thefinancial creditors.”

(emphasis in para 11.3 supplied)

53. Significantly, the report mentions that the empirical recordsuggests that the apprehension regarding companies are being put intoliquidation by minority creditors is pre-mature and further that the objectiveof the Code is to respect the commercial wisdom of the CoC. Asaforesaid, the amendment of 2018 cannot be considered as clarificatorybut it envisages new norm of threshold for considering the decision ofthe CoC as approval of the resolution plan. The Amendment Act of2018 having come into force w.e.f. 6[th] day of June, 2018, therefore, willhave prospective application and apply only to the decisions of CoCtaken on or after that date concerning the approval of resolution plan.

54. Reliance was placed by the resolution applicants and thestakeholders supporting the resolution plan of the concerned corporatedebtors, on the decisions of this Court in Gottumukkala VenkataKrishamraju (supra), B.K. 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:

A“15. Ordinarily wherever the word ‘substitute’ or ‘substitution’ isused by the legislature, it has the effect of deleting the old provisionand make the new provision operative. The process of substitutionconsists of two steps: first, the old rule is made to cease to existand, next, the new rule is brought into existence in its place. Therule is that when subsequent Act amends an earlier one in suchBa way as to incorporate itself, or part of itself, into the earlier,then the earlier Act must thereafter be read and construed as ifthe altered words had been written into the earlier Act with penand ink and the old words scored out so that thereafter there is noneed to refer to the amending Act at all. No doubt, in certainCsituations, the Court having regard to the purport and objectsought to be achieved by the Legislature may construe theword “substitution” as an “amendment” having aprospective effect. Therefore, we do not think that it is auniversal rule that the word ‘substitution’ necessarily oralways connotes two severable steps, that is to say, one ofDrepeal and another of fresh enactment even if it impliestwo steps. However, the aforesaid general meaning is tobe given effect to, unless it is found that legislature intendedotherwise. Insofar as present case is concerned, as discussedhereinafter, the legislative intent was also to give effect to theEamended provision even in respect of those incumbents who werein service as on September 01, 2016.”

(emphasis supplied)

The Court has restated the position that there can be no hard andfast rule merely because of the usage of expression “substituted” in theFamendment Act. For, in certain situations like the case on hand, theamendment will have prospective effect as it is not intended to reverseor nullify the decisions already taken by the CoC of the concernedcorporate debtors before coming into force of the amended provision.

55. This Court in Thirumalai Chemicals Limited vs. Union ofGIndia and Ors.,[24] in paragraph 23, observed that it is trite law thatevery statute is prospective unless it is expressly or by necessaryimplication made to have retrospective operation. This proposition hasbeen reiterated in Purbanchal Cables & Conductors (P) Ltd. vs. AssamSEB and Anr.[25] in paragraphs 51, which reads thus:

H24(2011) 6 SCC 73925(2012) 7 SCC 462

“51. There is no doubt about the fact that the Act is substantivelaw as vested rights of entitlement to higher rate of interest incase of delayed payment accrues in favour of the supplier and acorresponding liability is imposed on the buyer. This Court, timeand again, has observed that any substantive law shalloperate prospectively unless retrospective operation isclearly made out in the language of the statute. Only aprocedural or declaratory law operates retrospectively asthere is no vested right in procedure.

(emphasis supplied)

It may be useful to notice the exposition in CIT vs. VatikaTownship (P) Ltd.[26]In paragraph 29, the Court observed thus:

“29. The obvious basis of the principle against retrospectivity isthe principle of “fairness”, which must be the basis of every legalrule as was observed in L’Office Cherifien des Phosphates v.Yamashita-Shinnihon Steamship Co. Ltd.7Thus, legislationswhich modified accrued rights or which impose obligationsor impose new duties or attach new disability have to betreated as prospective unless the legislative intent is clearlyto give the enactment retrospective effect; unless thelegislation is for purpose of supplying an obvious omissionin former legislation or to explain former legislation.We need not note the cornucopia of case law available on thesubject because aforesaid legal position clearly emerges from thevarious decisions and this legal position was conceded by thecounsel for the parties. In any case, we shall refer to fewjudgments containing this dicta, little later.”

(emphasis supplied)

Once again, in Vijayalakshmi Rice Mills, New Contractors Co.and Ors. vs. State of Andhra Pradesh[27], in paragraph 5, the Courtobserved thus:

“5. Mr Nariman appearing on behalf of the appellants has laidgreat emphasis on the word “substituted” occurring in clause 2 ofthe Rice (Andhra Pradesh) Price Control (Third Amendment)

26(2015) 1 SCC 1

27(1976) 3 SCC 37

AOrder, 1964 and has urged that the claim of the appellants cannotbe validly ignored. Elaborating his submission, counsel hascontended that as the prices fixed by the Government are meantfor the entire season, the appellants have to be paid at the controlledprice as fixed vide the Rice (Andhra Pradesh) Price Control (ThirdAmendment) Order, 1964, regardless of the dates on which theBsupplies were made. We cannot accede to this contention. Itis no doubt true that the literal meaning of the word“substitute” is “to replace” but the question before us isfrom which date the substitution or replacement of the newschedule took effect. There is no deeming clause or someCsuch provision in the Rice (Andhra Pradesh) Price Control(Third Amendment) Order, 1964 to indicate that it wasintended to have retrospective effect. It is well recognizedrule of interpretation that in the absence of express words orappropriate language from which retrospectivity may be inferred,a notification takes effect from the date it is issued and not fromDany prior date. The principle is also well settled that statutes shouldnot be construed so as to create new disabilities or obligations orimpose new duties in respect of transactions which were completeat the time of the amending Act came into force. See Nani GopalMitra v. State of Bihar1.”

(emphasis supplied)

56. As regards the decision in B.K. Educational (supra), the Courtwas called upon to consider the question as to whether the LimitationAct, 1963 will apply to applications that are made under Section 7 and/orSection 9 of the Code on and from its commencement on 01-12-2016 tillF06-06-2018. That question was examined in the context of Section 238-A inserted in the I&B Code by the self-same amendment Act of 2018.The Court after adverting to the contents of the report of the InsolvencyLaw Committee of March, 2018 and other provisions of the Code andother enactments, opined that Section 238-A was clarificatory in natureGand being procedural law, came to hold that it had retrospective effect.The Court held that taking any other view would result in an incongruoussituation as the provisions of the Limitation Act would apply in some setof cases to be decided by the same Tribunal and not in other set ofcases. Besides, the Court adverted to the principle that right to sue

accrues on the date when default occurs and if the default occurredeven three years prior to the date of filing of the application, the samecannot be treated as “debt that is due and payable” or “debt” due.

57. In the case of State Bank of India (supra), the Court consideredthe question as to whether Section 14 of the I&B Code, which providesfor moratorium for the period mentioned in the Code, insolvency wouldapply to personal guarantor of corporate debtor. Even in this judgment,the Court after adverting to all the relevant materials and the governingprovisions in the Code, concluded that the amended Section 14 was onlyto clarify and set at rest what the Committee thought was an over-boardinterpretation of Section 14. On that reasoning the Court concluded thatthe amendment of Section 14 had retrospective effect.

58. In the present case, however, the amendment underconsideration pertaining to Section 30(4), is to modify the voting sharethreshold for decisions of the CoC and cannot be treated as clarificatoryin nature. It changes the qualifying standards for reckoning the decisionof the CoC concerning the process of approval of resolution plan. Therights/obligations crystallized between the parties and, in particular, thedissenting financial creditors in October 2017, in terms of the governingprovisions can be divested or undone only by law made in that behalfby the legislature. There is no indication either in the report of theCommittee or in the Amendment Act of 2018 that the legislature intendedto 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 amendmentAct 2018, reducing the threshold percent of voting share can be perceivedas declaratory or clarificatory in nature. In such situation, the NCLATcould not have examined the case on the basis of the amended provision.For the same reason, the NCLT could not have adopted differentapproach in these matters. Hence, no fault can be found with theimpugned decision of the NCLAT.

59. In our view, no other contention raised to support the resolutionplan of the concerned corporate debtors would be of any avail. Even so,we may advert to the argument regarding the effect of amendment ofRegulation 39 which has come into force with effect from 4[th] July, 2018.Prior to that amendment, Regulation 39(3) merely provided that theCommittee may approve any resolution plan with such modifications asit deems fit. This was amended vide Notification dated 3rd July, 2018and the substituted Regulation 39(3), now reads thus:

ABC

A“39. Approval of resolution plan.-xxxxxxxxx

(3) The committee shall evaluate the resolution plans receivedunder sub-regulation (1) strictly as per the evaluation matrix toidentify the best resolution plan and may approve it with suchBmodification as it deems fit:

PROVIDED that the committee shall record the reasons forapproving or rejecting resolution plan.”

60. In the first place, amendment to regulation cannot haveCretrospective effect so as to impact the decision of the CoC of theconcerned corporate debtor – taken before the amendment of the saidregulation. There is no indication in the Code as amended or theregulations to suggest that as consequence of this amendment thedecisions aleady taken by the concerned CoC prior to 3[rd] July, 2018 betreated as deemed to have been vitiated or for that matter, necessitatingDreversion of the proposal to CoC for recording reasons, that too beyondthe statutory period of 270 days. new life cannot be infused in theresolution plan which did not fructify within the statutory period, by suchcircuitous route.61. Assuming that this provision was applicable to the cases onEhand, non-recording of reasons for approving or rejecting the resolutionplan by the concerned financial creditor during the voting in the meetingof CoC, would not render the final collective decision of CoC nullity perse. Concededly, if the objection to the resolution plan is on account ofinfraction of ground(s) specified in Sections 30(2) and 61(3), that mustbe specifically and expressly raised at the relevant time. For, the approvalFof the resolution plan by the CoC can be challenged on those grounds.However, if the opposition to the proposed resolution plan is purely acommercial or business decision, the same, being non-justiciable, is notopen to challenge before the Adjudicating Authority (NCLT) or for thatmatter the Appellate Authority (NCLAT). If so, non-recording of anyGreason for taking such commercial decision will be of no avail. In thepresent case, admittedly, the dissenting financial creditors have rejectedthe resolution plan in exercise of business/commercial decision and notbecause of non-compliance of the grounds specified in Section 30(2) orSection 61(3), as such. Resultantly, the amended regulation pressed intoservice, will be of no avail.H

62. Relying on the dictum in Mardia Chemicals (supra), inparticular paragraph 45, it was argued that even in regard to the optionexercisable by the financial creditors under Section 30(4), the requirementof giving reasons for approval or disapproval of the proposed resolutionplan must be read into it. In that case, the Court had considered themechanism specified in Section 13 of the Securitisation andReconstruction of Financial Assets and Enforcement of Security InterestAct, 2002, which provided for giving notice to the borrower and uponreceipt of such notice the borrower could raise objections as to why theproposed 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 consideras to what forums or remedies are available to the borrower toventilate his grievance. The purpose of serving notice uponthe borrower under sub-section (2) of Section 13 of the Actis, that reply may be submitted by the borrower explainingthe reasons as to why measures may or may not be takenunder sub-section (4) of Section 13 in case of non-compliance with notice within 60 days. The creditor mustapply its mind to the objections raised in reply to such noticeand an internal mechanism must be particularly evolved toconsider such objections raised in the reply to the notice.There may be some meaningful consideration of the objectionsraised rather than to ritually reject them and proceed to take drasticmeasures under sub-section (4) of Section 13 of the Act. Oncesuch duty is envisaged on the part of the creditor it wouldonly be conducive to the principles of fairness on the partof the banks and financial institutions in dealing with theirborrowers to apprise them of the reason for not acceptingthe objections or points raised in reply to the notice servedupon them before proceeding to take measures under sub-section (4) of Section 13. Such reasons, overruling theobjections of the borrower, must also be communicated tothe borrower by the secured creditor. It will only be infulfillment of requirement of reasonableness and fairness in thedealings of institutional financing which is so important from thepoint of view of the economy of the country and would serve thepurpose in the growth of healthy economy. It would certainlyprovide guidance to the secured debtors in general in conducting

Athe affairs in manner that they may not be found defaulting andbeing 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 communicationof the reasons for not accepting the objections taken bythe secured borrower may not be taken to give occasion toBresort to such proceedings which are not permissible underthe provisions of the Act. But communication of reasons not toaccept the objections of the borrower, would certainly be for thepurpose of his knowledge which would be step forward towardshis right to know as to why his objections have not been acceptedCby the secured creditor who intends to resort to harsh steps oftaking over the management/business of viz. secured assets withoutintervention of the court. Such person in respect of whom stepsunder Section 13(4) of the Act are likely to be taken cannot bedenied the right to know the reasons of non-acceptance and ofhis objections. It is true, as per the provisions under the Act,Dhe may not be entitled to challenge the reasonscommunicated or the likely action of the secured creditorat that point of time unless his right to approach the DebtsRecovery Tribunal as provided under Section 17 of the Actmatures on any measure having been taken under sub-Esection (4) of Section 13 of the Act.”

(emphasis supplied)

In the present case, however, we are concerned with the provisionsof I&B Code dealing with the resolution process. The dispensationprovided in the I&B Code is entirely different. In terms of Section 30 ofFthe I&B Code, the decision is taken collectively after due negotiationsbetween the financial creditors who are constituents of the CoC andthey express their opinion on the proposed resolution plan in the form ofvotes, as per their voting share. In the meeting of CoC, the proposedresolution plan is placed for discussion and after full interaction in theGpresence of all concerned and the resolution professional, the constituentsof the CoC finally proceed to exercise their option (business/commercialdecision) to approve or not to approve the proposed resolution plan. Insuch case, non-recording of reasons would not per se vitiate thecollective decision of the financial creditors. The legislature has notenvisaged challenge to the “commercial/business decision” of theH

financial creditors taken collectively or for that matter their individualopinion, as the case may be, on this count.

63. It was then contended that NCLAT committed manifest errorin not calling upon the dissenting financial creditors to respond to theapplications filed in the concerned appeals pending before it, includingwith prayer to allow the resolution applicant to revise the resolutionplan. We find no merits in this submission. The reliefs claimed in thestated application filed before the NCLAT would not take the matterany further. For, it is enough for the dissenting financial creditors todisapprove the proposed resolution plan by voting as per its voting share,based on commercial decision. Indeed, if the opposition of the dissentingfinancial creditors is in regard to matter(s) within the jurisdiction of theTribunal ascribable to Sections 30(2) or 61(3), then the situation may besomewhat different. But that is not in issue in these cases.

64. As regards the application by the resolution applicant for takinghis revised resolution plan on record, the same is also devoid of meritsinasmuch as it is not open to the Adjudicating Authority to entertain arevised resolution plan after the expiry of the statutory period of 270days. Accordingly, no fault can be found with the NCLAT for notentertaining such application.

65. The counsel appearing for the resolution applicant and thestakeholders supporting the resolution plan were at pains to persuade usto exercise powers under Article 142 of the Constitution of India.Inasmuch as, in both the cases, the vote of approval exceeded morethan 66% of the voting share of the financial creditors and yet the benefitof the amended provision could not be availed, as it came only during thependency of the appeal before the NCLAT. The submission is that thisCourt may set aside the order passed by the Tribunal and relegate theparties in both the cases, before the NCLT for considering theproceedings afresh in light of the amended provision reducing thethreshold requirement of percent of voting share of financial creditors to66%. We are afraid, it is not possible for us to exercise powers underArticle 142 of the Constitution which will result in issuing directions inthe teeth of the provisions as applicable to the cases on hand. We,therefore, decline to accede to this request. Having answered the coreissues and to avoid prolixity, we do not wish to dilate on the exposition inother reported decisions relied upon by the counsel.

A66. As result, we hold that the NCLAT has justly concluded inthe impugned decision that the resolution plan of the concerned corporatedebtor(s) has not been approved by requisite percent of voting share ofthe financial creditors; and in absence of any alternative resolution planpresented within the statutory period of 270 days, the inevitable sequel isto initiate liquidation process under Section 33 of the Code. That view isBunexceptional. Resultantly, the appeals must fail.

67. In view of the above, the appeals are dismissed. The companionapplications also stand dismissed. No order as to costs.

Kalpana K. Tripathy

Appeals dismissed.