Voting For Section 12A Proposal To Be Computed As Per Proviso To Section 25A(3A) R/w Section 25A(3) Of IBC: NCLAT Delhi

The National Company Law Appellate Tribunal (“NCLAT”), Principal Bench, comprising of Justice Ashok Bhushan (Chairperson) and Shri Barun Mitra (Technical Member), has held that for computing voting with regard to proposal under Section 12A of IBC, the voting has to be computed as per proviso to Section 25A(3A) read with Section 25A(3) of IBC. It has been further clarified that a proposal under Section 12A which statutorily requires 90% votes for approval, would not stand approved if majority (more than 50%) homebuyers/financial creditors vote in favour of it. The threshold of 90% votes must be met for approval of proposal. Section 25A(3) of IBC provides that when the Authorised Representative represents several financial creditors, then he shall cast his vote for each financial creditor according to the instructions received from each financial creditor, to the extent of his voting share. The Proviso to Section 25A(3A) of IBC states that when voting takes place in respect of proposal under Section 12A, then the Authorised Representative of Financial Creditor shall cast his vote in accordance with Section 25A(3). “When the statute i.e. Section 12A provides 90% voting for approval of Section 12A proposal, 90% of the voting share of the creditor in class have to be taken into consideration. Since voting by each homebuyers who represented creditor in class has to be computed as per his voting share and adding all vote shares of the creditor in class with any other Financial Creditor if it is at least up to 90% only then 12A proposal is held to be passed”, the Bench held. Background Facts Sidhartha Buildhome Pvt. Ltd. (“Corporate Debtor”) is engaged in the business of real estate development. On 04.03.2021, the Corporate Debtor was admitted into Corporate Insolvency Resolution Process (“CIRP”) by the NCLT. Mr. Sidharth Chauhan (“Promoter”) of the Corporate Debtor submitted a settlement proposal under Section 12A of IBC on 06.12.2022. When the Promoter's proposal was put to vote before the Committee of Creditors (CoC), 40.15% of homebuyers voted in favour, 29.20% of homebuyers voted against it and 11.08% abstained from voting. The other Financial Creditors such as Punjab National Bank having 12.42% voting share voted for the plan and Punjab & Sind Bank having 7.15% voting share voted against the plan. The Resolution Professional computed the total votes in favour of proposal as 52.57%, which is less than the requisite 90% of the voting share of CoC. Thus, the proposal was not approved. The Authorised Representative of Homebuyers filed an application (IA No. 753 of 2023) before the NCLT, challenging the voting result recorded by Resolution Professional on Section 12A proposal. The Homebuyers contended that the Section 12A proposal stood approved with 92.85% votes. On 24.05.2023, the NCLT held that the Resolution Professional ought to have followed the method prescribed under Section 25A(3A) of IBC. The NCLT concluded that since more than 50% of the voting has been done in favour of Section 12A proposal, the Resolution Professional should have taken it as 100%, since the Financial Creditors have to be treated as a class. The Resolution Professional filed an appeal before the NCLAT against the order dated 24.05.2023. NCLAT Verdict The issue before the Bench was regarding manner of computation of voting with regard to application under Section 12A of IBC. The Bench opined that the NCLT failed to notice the proviso to sub-section (3A) of Section 25A. It was observed that, “Thus, the voting under sub-section (3A) which is to be cast by Authorised Representative is to be on the basis of vote of more than 50% of the voting share of the Financial Creditor in a class but the said provision of sub-section (3A) was subject to the proviso which proviso created a different voting pattern for 12A. Thus, for computing voting with regard to 12A proposal, the voting has to be computed as per Section 25A (3A) proviso r/w Section 25A(3).” The Bench held for the purpose of proposal under Section 12A, the voting has to be computed as per proviso to Section 25A(3A) read with Section 25A(3) of IBC. The manner of computation was clarified by the Bench with an example and it has been held that Section 12A requires 90% of votes for approval of proposal and the same cannot be achieved if merely more than 50% of homebuyers/financial creditors vote in favour of the proposal. “We are of the view that the interpretation put by the Adjudicating Authority on provision of 12A is not in accord with the statutory scheme. This can be demonstrated by taking a simple example; in a case where homebuyers i.e. creditor in class have 100% vote share in the CoC. Whether if majority of homebuyers i.e. 50% of the homebuyers take a decision to approve 12A proposal, can it be held that the proposal of 12A stand approved. Answer is a clear...

Voting For Section 12A Proposal To Be Computed As Per Proviso To Section 25A(3A) R/w Section 25A(3) Of IBC: NCLAT Delhi

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Voting For Section 12A Proposal To Be Computed As Per Proviso To Section 25A(3A) R/w Section 25A(3) Of IBC: NCLAT Delhi

Pallavi Mishra

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