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Voting by Committee of Creditors in the context of dissent to Resolution Plan

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Written by: admin

Category: IBC

Published: 19 July 2022

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When a vote is taken on the Resolution Plan, the following categories are possible:

• Creditors who absented from the meeting
• Creditors who attended the meeting but did not vote
• Creditors who voted against the Resolution Plan
• Creditors who voted for the Resolution Plan.

Now, it is settled that creditors who voted for the Resolution Plan must form 66% of the total voting power of the CoC otherwise the Resolution Plan will not go through. It is specified in Section 30(4) of the Code that “The committee of creditors may approve a resolution plan by a vote of not less than sixty-six percent of voting share of financial creditors…….”.

Section 30(2) specifies that the Resolution Plan “provides for the payment of debts of financial creditors, who do not vote in favour of the resolution plan, in such manner as may be specified by the Board…….”.

In my opinion, “do not vote in favour of” denotes an act and not abstinence. “did not vote in favour of” essentially means “voted against”. It indicates that they have, in fact, voted, but not in favour of the resolution plan. If the legislative intent is otherwise, the drafting could have been like “do not vote in the meeting” or likewise.

In case we consider that the abstaining members also “did not vote in favour of”, then the response could be that they have “neither voted in favour nor against” and in fact, they “did not vote” at all.

By no stretch of imagination, “did not vote” can be construed as “did not vote in favour of”. The term “did not vote in favour of” denotes that the member favoured something other than the resolution plan.

Regulation 38(1)(b) : “to the financial creditors, who have a right to vote under sub-section (2) of section 21 and did not vote in favour of the resolution plan……..”.

Now, “right to vote under section 21(2) includes all the financial creditors who are members of CoC.

The Regulation is also aligned with the Section 30(2) now that the definition of “dissenting financial creditor” is deleted from Regulation 2(f) because it included the members who abstained from voting also into the purview of Section 30(2). The deletion was done after some NCLT/NCLAT/High Court comment that IBBI cannot make regulations to deviate from the Code, in the specific context of Regulation 2(f). I can’t be able to locate the exact judgment right now.

Absentees and members abstained from voting: They are included in the denominator but not in the numerator to decide 66% of voting share. Of course, the members who voted against the resolution plan are also a part of the denominator but not numerator. As discussed earlier, the absentees and members abstained from voting did not indicate their preference and must be distinguished from the members who voted against the resolution plan and indicated their preference against the resolution plan.

BLRC: The BLRC report clearly specifies the following: “creditors absent at the meeting will have to accept the decision of those present”.

In my opinion, when the members who absented from the meeting or who attended the meeting and abstained from the voting have essentially left their fate in to the hands of the majority. As against this, the member who voted for or against the resolution plan took the matter into his own hands.

Looking at this angle, the absentee/abstaining members need not be counted as voted against and have to be tagged along with the majority in so far as the implementation of the resolution plan is concerned.

Whereas it is clear from Section 30(4) of the Code that persons who did not vote in favour of the resolution plan must be paid an amount which shall not be less than the liquidation value as determined in accordance with Section 53.

Tag along at other places: Section 25A(3A) of the Code specifies that the Authorised Representative shall vote in accordance with the majority decision of the class of creditors he represents, and that too with a decision taken by a majority of more than 51% of the voting share of financial creditors who have cast their vote.

This clearly shows that the voting by class of creditors is done on the premise of “members present and voting”. It means that the absentees/abstaining members of class of creditors do not form part of the denominator or numerator. They will be tagged along with the decision made by the majority of the votes polled, which can either be in favour of the proposed resolution or against the proposed resolution.

Once we accept that the absentee/abstaining in the class of creditors are tagged along with the majority decision, we have to accept that the members of CoC other than class of creditors also get tagged along with the majority decision and would be entitled to the payments under the resolution plan which need not necessarily be matched with the liquidation value.