Case Note & Summary
The Supreme Court of India heard appeals arising from a common judgment of the National Company Law Appellate Tribunal (NCLAT) dated 6 September 2018, concerning the insolvency resolution process of two corporate debtors: Kamineni Steel & Power India Pvt. Ltd. (KS&PIPL) and Innoventive Industries Ltd. (IIL). The NCLAT had affirmed the order of the National Company Law Tribunal, Mumbai (NCLT Mumbai) rejecting the resolution plan for IIL and directing liquidation. For KS&PIPL, the NCLAT reversed the decision of the National Company Law Tribunal, Hyderabad (NCLT Hyderabad) which had approved the resolution plan, and instead remanded the matter for initiation of liquidation under Sections 33 and 34 of the Insolvency and Bankruptcy Code, 2016 (I&B Code). The core issue was whether the NCLT could approve a resolution plan that did not receive the support of at least 75% of the voting share of financial creditors in the Committee of Creditors (CoC). KS&PIPL was incorporated in 2008 and became financially distressed, leading to the initiation of Corporate Insolvency Resolution Process (CIRP) on 10 February 2017. The CoC held multiple meetings to consider resolution plans. In the 9th meeting on 27 October 2017, a revised One Time Settlement (OTS) proposal was considered. Only financial creditors holding 55.73% voting share approved the plan, while Indian Overseas Bank (15.15%) rejected it, and three other banks (29.12%) remained open or disapproved. By 30 October 2017, express approval stood at 66.67%, with dissenting lenders at 26.97% and one bank (6.36%) not having voted. The resolution professional filed an affidavit on 3 November 2017 reporting the outcome. The corporate debtor argued that non-participating creditors should be excluded, which would result in 78.63% approval. The NCLT Hyderabad accepted this argument and approved the plan on 27 November 2017. Aggrieved financial creditors appealed to the NCLAT, which reversed the decision, holding that the 75% threshold was mandatory and could not be circumvented. The Supreme Court considered the appeals under Section 62 of the I&B Code. The Court examined the statutory scheme, particularly Section 30(4) which requires a resolution plan to be approved by a vote of not less than 75% of voting share of financial creditors. The Court held that this requirement is mandatory and the adjudicating authority has no discretion to approve a plan that fails to meet this threshold. The Court rejected the argument that non-participating creditors should be excluded, noting that the voting share of all financial creditors in the CoC must be considered. The Court upheld the NCLAT's decision, confirming that the resolution plan for KS&PIPL was rightly rejected and liquidation must proceed. The appeals were dismissed, and the NCLAT's order was affirmed.
Headnote
A) Insolvency Law - Resolution Plan Approval - Mandatory 75% Voting Share - Section 30, Section 31, Section 33, Section 34, Insolvency and Bankruptcy Code, 2016 - The court held that approval of a resolution plan by not less than 75% of voting share of financial creditors in the Committee of Creditors is mandatory under Section 30(4) of the I&B Code. The adjudicating authority cannot disregard this requirement or adopt a convoluted approach to deem approval. Where the plan fails to achieve the requisite majority, the authority must reject the plan and initiate liquidation under Sections 33 and 34. (Paras 5, 7, 10, 11) B) Insolvency Law - Committee of Creditors - Voting by Financial Creditors - Section 30, Insolvency and Bankruptcy Code, 2016 - The court clarified that only financial creditors who are members of the Committee of Creditors and who vote on the resolution plan are considered for computing the 75% threshold. Non-participating creditors cannot be excluded to artificially achieve the required majority. The voting share of dissenting or abstaining creditors must be counted against approval. (Paras 7, 9, 10) C) Insolvency Law - Liquidation - Initiation upon Rejection of Resolution Plan - Section 33, Section 34, Insolvency and Bankruptcy Code, 2016 - Where a resolution plan is rejected due to lack of requisite voting share, the adjudicating authority is bound to order liquidation of the corporate debtor. The NCLAT correctly reversed the NCLT Hyderabad's approval and remanded for liquidation proceedings. (Paras 4, 5, 11)
Issue of Consideration
Whether the adjudicating authority (NCLT) can approve a resolution plan that has not received the requisite 75% voting share of financial creditors in the Committee of Creditors, and whether the NCLAT was correct in reversing the NCLT Hyderabad's approval and directing liquidation.
Final Decision
The Supreme Court dismissed the appeals and upheld the NCLAT judgment dated 6 September 2018, confirming that the resolution plan for KS&PIPL was rightly rejected for lack of 75% voting share, and that liquidation must proceed under Sections 33 and 34 of the I&B Code. The appeals were disposed of accordingly.
Law Points
- Insolvency and Bankruptcy Code
- 2016
- Section 30
- Section 31
- Section 33
- Section 34
- Section 61
- Section 62
- Committee of Creditors
- Resolution Plan
- Voting Share
- Liquidation
