The Insolvency and Bankruptcy Code, 2016 (IBC) has witnessed 6 amendments in the past
years since its implementation in 2016. But there are about 84 amendments in the Regulations
under IBC. However, there still exists some grey areas which create problems in the
implementation of the law and its related provisions.
There is such a grey area in IBC regarding “whether a creditor who abstains from voting on a
Resolution Plan be counted for voting?” This issue can be discussed with the help of some
relevant provisions and Regulations under the Code and also by some judicial interpretations.
Some interpretations are of the view that abstaining creditors’ voting share must be included in
the denominator so as to make the voting cast difficult to make it harder to pass the resolution
plan and potentially causing “liquidation by inaction”. Whereas, some interpretations suggest
that abstaining creditors should neither be included in numerator nor in denominator to consider
it as ‘neutral’. Section 30(4) of IBC requires approval of 66% of voting share of financial
creditors. Here, the debate arises as to whether this 66% of voting share means all voting shares or only those who are present and voting.
In the case of K. Sashidhar v. Indian Overseas Bank & Ors. (2019), the Supreme Court strictly
adhered to thresholds and observed that a resolution plan must be approved by a voting share
of 66% (as amended in 2018, earlier 75%) of financial creditors in the Committee of Creditors
(CoC). If this requirement is not met, the plan is rejected. The judgement clarified that the
voting share must be of all financial creditors and not just those present and voting.
An instance can also be given of Regulation 25(4) of CIRP Regulations, 2016, which describes
that “at the conclusion of a vote at the meeting, the resolution professional shall announce the
decision taken on items along with the names of the members of the committee who voted for
or against the decision, or abstained from voting.” Furthermore, under Regulation 26(4) of
CIRP Regulations, it is defined that “at the conclusion of a vote held under this Regulation,
the resolution professional shall announce and make a written record of the summary of
decisions taken on a relevant agenda item along with the names of the members of the
committee who voted for or against the decision, or abstained from voting”. Also, under
Regulation 25(3) of CIRP Regulations, “the resolution professional shall take a vote of the
members of the committee present in the meeting, on any item listed for voting after discussion
on the same”. These provisions bring in mind a few questions such as whether the financial
creditors who abstained from voting were either present or absent from the meeting.
In the case of Rahul Jain v. J. Karthiga, RP of M/s. Capricorn Foods Product India Limited
(2022, NCLT Chennai), it was held that the voting share of other financial creditors increases
indirectly when abstained votes are removed from the total number of the votes from
denominator. It is concluded that they have voted in favor of the resolution plan.
Further, in the case of Richa Industries Ltd. (NCLAT), it was held that under Section 30(4) of
IBC the requirement for approval of a resolution plan by 66% of the voting share of financial
creditors includes all financial creditors, whether they voted for, against, or abstained from
voting.
Let us understand this with the help of an example. A meeting comprised of 100 creditors out
of which 50 voted in favor, 25 against and 25 abstained from voting. Now, if voting cast is
computed by including abstained voted then total voting share will be 50/100 which is 50%.
Since, the resolution plan did not secure 66%, the plan stands rejected. Where voting cast is
computed by excluding abstained votes, then the total voting share will be 50/75 which is equal
to 66.67%. Since, resolution plan secured the requisite 66% voting, the plan stands approved
by the CoC.
The IBBI (IRP-CP) Fourth Amendment Regulations, 2017 notified on 31.12.2017 amended the
definition of dissenting shareholders to include abstained financial creditors in the voting for
resolution plan. According to Regulation 2(1)(f), “dissenting financial creditor means a
financial creditor who voted against the resolution plan or abstained from voting for the
resolution plan, approved by the committee.” Henceforth, after this amendment, abstained
financial creditors are also included in the voting cast for approval of resolution plan. But again,
this creates the confusion for judicial interpretations because this inclusion favors those who
do not want to get the resolution plan passed and also makes the voting cast difficult. Therefore, IBBI must come forward to make a clear provision regarding this issue to sort out this grey area.