Each homebuyer vote matters when voting on resolutions to withdraw CIRP: NCLAT

The vote of each homebuyer matters when it comes to voting on a proposal to withdraw the corporate insolvency resolution process (CIRP) against a company, the National Company Law Appellate Tribunal (NCLAT) at Delhi held recently..The appellate tribunal held that while voting on a proposal to withdraw the CIRP, it is not enough to only count the opinion of the majority of homebuyers, which may be represented by a single vote exercised through an authorised representative.Notably, Section 12A of the Insolvency and Bankruptcy Code (IBC) lays down that resolutions to withdraw the CIRP would only stand approved if 90 per cent of the Committee of Creditors (CoC) votes in favour of such a resolution.This is in contrast to the lower voting percentages required for voting on other types of resolutions, such as voting on the approval of a resolution plan (66 per cent approval required).The NCLAT has now clarified that for voting on CIRP withdrawals under Section 12A of the IBC, the votes cast by each homebuyer individually have to be counted (instead of treating them as one class of financial creditors) to determine if 90 per cent of the CoC (which would include homebuyers) has voted in favour of the resolution.“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). As per Section 25A(3), if the authorised representative represents several financial creditors, then he shall cast his vote in respect of each financial creditor in accordance with instructions received from each financial creditor, to the extent of his voting share,” the NCLAT’s February 16 judgment stated..A coram of NCLAT Chairperson, Justice (retired) Ashok Bhushan and Technical Member Barun Mitra passed the ruling on a case concerning the CIRP of Sidhartha Buildhome Pvt. Ltd. (corporate debtor)..The CIRP was initiated in 2021 against Sidhartha Buildhome, a real-estate company, on an application by Oriental Bank of Commerce (now merged with Punjab National Bank).40.15 per cent of homebuyers voted in favour of the Section 12A resolution proposed by Sidhartha Buildhome’s promoter to withdraw the CIRP against the company. 29.20 per cent of homebuyers voted against the proposal and 11.08 percent abstained from voting. Punjab National Bank (another financial creditor), which held a 12.42 per cent vote share, voted in favour of the resolution while Punjab & Sind Bank (financial creditor holding a 7.15 percent vote share) voted against it.The Resolution Professional (RP) pointed out that this only meant that only 52.57 percent of financial creditors had voted “yes” for the proposal, which was less than the 90 per cent threshold mentioned under Section 12A of the IBC. Therefore, the RP rejected the Section 12A proposal.This decision was challenged before the National Company Law Tribunal (NCLT) by a section of the homebuyers who had voted in favour of the Section 12A proposal, as well as the authorised representative of the homebuyers.The homebuyers made reference to Section 25A (3A) of the IBC, which supported the view that an authorised representative would vote on behalf of the majority of homebuyers (financial creditors) in CoC meetings.The NCLT allowed this challenge and concluded that the Section 12A proposal should be viewed as having been approved. It opined that the homebuyers were one class with one vote, with the vote in this case being in favour of the Section 12A proposal. This verdict was challenged before the NCLAT by the dissenting homebuyers as well as the RP..The NCLAT set aside the NCLT decision after noting that Section 25A (3A) was not applicable to voting on resolutions under Section 12A. The proviso to Section 25A (3A) made this clear, the NCLAT held.“Proviso to sub-section (3A) clearly indicate that the decision of creditor of class by vote of more than 50% of the voting share as contemplated by sub-section (3A) is not applicable with regard to voting on a 12A application …The Adjudicating Authority (NCLT) has committed error in coming to the conclusion that vote share of creditor in class i.e. homebuyers have to be accepted as the majority vote i.e. 50% of the voting share, hence, it has to be held that 100% of homebuyers have voted for the 12A proposal.”.The appellate tribunal clarified that in Section 12A resolutions, the process of voting is to be guided by Section 25A (3) and not sub-section 3A. Sub-section (3) of Section 25A supported the view that each homebuyer’s vote must be counted individually.“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 no. Since statute provides a rigorous threshold i.e. 90% of vote share, hence, when 90% vote share of the creditor of class approves the application under Section 12A only then CIRP can be withdrawn. The rigorous vote share has been provided with an object and purpose,” the judgment stated.Therefore, it reversed the NCLT decision and restored the CIRP against Sidhartha Buildhome..The NCLT had clarified that the revival of the CIRP would be confined to only one of two projects launched by the company (Project Estella). The appellate tribunal was informed that steps had been taken to complete the other project (Project NCR Green) by the end of February.Therefore, the NCLAT opined that Project NCR Green alone, being almost complete, should be kept out of the CIRP..Arguments for the appellants (including a section of homebuyers and the RP) were led by Senior Advocate Dr. Menaka Guruswamy and Advocates Alok Dhir and Sandeep Bajaj.Advocate Sumant Batra appeared for the promoter of the corporate debtor while Senior Advocate Abhijeet Sinha represented the section of homebuyers who had supported the withdrawal of CIRP and their authorised representative..[Read NCLAT judgment]