Whether The Vote Of Each Homebuyer Is Required During The Voting On CIRP Withdrawal Resolutions? NCLAT Clarifies S 12A of IBC
Aryan Raj
4 March 2024 9:30 AM GMT
The National Company Law Appellate Tribunal (“NCLAT”), Principal Bench, comprising of Justice Ashok Bhushan (Chairperson) and Shri Barun Mitra (Technical Member), held that for voting on Corporate Insolvency Resolution Process (CIRP) withdrawals under Section 12A of the Insolvency and Bankruptcy Code (IBC), the vote of each homebuyer must be counted individually, rather than as...
The National Company Law Appellate Tribunal (“NCLAT”), Principal Bench, comprising of Justice Ashok Bhushan (Chairperson) and Shri Barun Mitra (Technical Member), held that for voting on Corporate Insolvency Resolution Process (CIRP) withdrawals under Section 12A of the Insolvency and Bankruptcy Code (IBC), the vote of each homebuyer must be counted individually, rather than as a collective class of financial creditors.
Section 12A stipulates statutory provisions governing “withdrawal of application admitted under section 7, 9 or 10”. It states, “The Adjudicating Authority may allow the withdrawal of application admitted under section 7 or section 9 or section 10, on an application made by the applicant with the approval of ninety per cent. voting share of the committee of creditors, in such manner as may be specified.”
Background Facts:
On March 4, 2021, a Corporate Insolvency Resolution Process (CIRP) was initiated against Sidhartha Buildhome (Corporate Debtor), a real estate company, by Oriental Bank of Commerce.
On 23.02.2022, Form G was published, after which two Resolution Plans were received. Among these, the proposal submitted by the director of Corporate Debtor to withdraw the CIRP was supported by 40.15% of homebuyers, opposed by 29.20%, with 11.08% abstaining during the discussion and voting process.
The Resolution Professional (RP) noted that only 52.57% of financial creditors had voted in favor of the proposal, falling short of the required 90% threshold under Section 12A of the IBC. Consequently, the RP rejected Section 12A proposal.
In response, the Authorized Representative of the homebuyers filed an (IA No. 753 of 2023), contesting the RP's decision before the National Company Law Tribunal (NCLT).
Subsequently, the NCLT allowed the application (IA No. 753 of 2023), and held that, since more than 50% of the votes were in favor of the 12A proposal, the RP should have regarded it as 100%, given that Financial Creditors are treated as a single class."
Aggrieved by the Order of NCLT allowing the withdrawal proposal under Section 12A, both the RP and Homebuyers have filed the appeal before NCLAT.
NCLAT Verdict:
The NCLAT set aside the NCLT order in (IA No. 753 of 2023), deeming it unsustainable, and reinstated the CIRP proceedings against the Corporate Debtor.
The NCLAT noted that the NCLT overlooked the proviso to sub-section (3A) of Section 25A. It held that for computing votes related to the 12A proposal, the voting process should adhere to Section 25A (3A) proviso r/w Section 25A(3).
NCLAT further clarifies the law on Section 12A and holds that voting by each homebuyer, who represents a creditor in the class, has to be computed according to their respective voting share. Additionally, the total vote shares of the creditors in the class, combined with any other Financial Creditor, must reach at least 90% for the 12A proposal to be considered passed.
Case Title: Vijay Saini vs Devender Singh & Ors.
Case No.: Company Appeal (AT) (Ins.) No. 1194, 791 & 982 of 2023
Counsel for Appellant: Dr. Menaka Guruswamy and Mr. Alok Dhir and Mr. Sandeep Bajaj.
Counsel for Respondents: Mr. Sumant Batra and Mr. Abhijeet Sinha
