NCLT Bench quashes 75% vote requirement

Indian Overseas Bank, Central Bank of India and Bank of Maharashtra resisted resolution plan citing the 75% vote share clause

In a trend-setting order, the bench here of the National Company Law Tribunal (NCLT) has struck down an attempt by a group of banks to block an insolvency resolution plan by citing the 75 per cent vote share requirement prescribed under Section 30(4) of the Insolvency and Bankruptcy Code (IBC).

The bench of judicial member Rajeshwara Rao Vittanala and technical member Ravikumar Duraisamyapproved a one-time settlement (OTS) as agreed to by Kamineni Steel & Power, a Hyderabad-based corporate debtor, as part of a resolution plan cleared by a group of creditors with 66.67 per cent voting power.

Speaking to Business Standard on the verdict, V K Sajith, an advocate for Indian Bank that had backed the resolution plan, with four other lenders, said the bench had gone beyond only the interests of corporate debtor and corporate creditors, as the plan involved possible rehabilitation of 450 workers.

Indian Overseas Bank, Central Bank of India and Bank of Maharashtra, with a combined 29.12 percent voting power, had resisted the resolution plan, citing the 75 per cent vote share clause. 

The bench rejected this. "The dissenting bankers appear to have been guided by 75 per cent as prescribed under Section 30(4), rather than any policy or Reserve Bank of India (RBI) guidelines in that regard. Section 30(4) merely states that the Resolution Plan may be approved by a vote not less than 75 per cent of voting share of the financial creditors. It did not say whether such percentage is out of the total voting share of the financial creditors or those present during meetings of the respective COC (committee of creditors) of financial creditors. Since the IBC is a new Code and still evolving, the above percentage has to be read with various circulars issued by RBI, regulator for the banking sector,” the bench said in a 100-page judgement.

The registry was told to send a copy of the order to the RBI governor. The bench approved the OTS presented by the Resolution Professional, based on the consent of five financial institutions —Indian Bank, JM Financial Asset Reconstruction Company, Allahabad Bank, Andhra Bank and Oriental Bank of Commerce.

Kamineni had shut down the operations of its plant in Nalgonda district of Telangana, owing to financial and other difficulties. Noting its willingness to implement the resolution plan, the NCLT bench observed a recommencing of operations would increase manufacturing activity in the area and save the livelihood of around 450 workers and their kin. The bench relied on RBI guidelines pertaining to the mechanism of a Joint Lenders Forum to uphold the resolution process endorsed by the five corporate creditors. According to RBI's guidelines, if 60 per cent of the creditors by value and 50 per cent by number approve a plan, this will bind the other lenders. 

“Considering the RBI circular, though 75 per cent of the lenders in value did not approve the revised OTS Scheme, considering the entire issue in its totality i.e revival of a relatively new company, started with an investment of Rs 1,400 crore, to renew employment opportunities both direct and indirect, contribution to state and central exchequer, to GDP, etc, (we) approve the Revised OTS, since a majority of the lenders, also being public sector banks, and even a private sector ARC (asset reconstruction company) have approved,” the bench said.