A stalemate in Jaypee Infratech’s insolvency resolution process and the possibility of similar deadlocks in the rescue plans for other bankrupt realtors, where homebuyers form a major chunk in terms of creditors by value, has triggered a review of the Insolvency and Bankruptcy Code (IBC). While all the authorities concerned — the ministry of corporate affairs, the Insolvency & Bankruptcy Board of India and NCLT — have acknowledged the difficulty in getting the scattered community of homebuyers to cast their votes unitedly in a favour a resolution plan so as to ensure its passage under the IBC-mandated 66% majority in the committee of creditors (CoC), the possible solutions to the vexed issue are still being discussed.
The MCA has placed two options on the table — representative voting among home-buyers by treating them as a sub-class among the financial creditors or by stipulating that the majority threshold could be met by just counting those who are present and vote in the CoC meeting.
And the IBBI seemed in agreement as it told NCLT-Delhi that, “a stakeholder, who with adequate notice and opportunity to participate, does not do so (take part in the voting process) should be deemed to have given his or her assent to other stakeholders to decide on the matter at hand”. Homebuyers in the Jaypee Infratech (JIL) case also pitched for the change in their affidavit.
While lenders sought a clarification on whether the threshold voting shares fixed for the decisions of the CoC under various sections of the IBC required to be followed literally ot are only directory in nature (if these are only directory, then a solution to the problem of homebuyers’ absenteeism may be found without amending the Code), the MCA in an affidavit stated that the voting shares are indeed mandatory.
The two members of the NCLT, however, differed on how to resolve the issue, leaving the matter to the NCLT principal bench to decide (as of now, it has reserved the order) Judicial member Bikki Raveendra Babu said: “The proposal of the homebuyers that any decision taken by any number of the homebuyers within that class, should be considered to be the decision of the whole class is unjust.”
Appreciating that meeting the 66% threshold in the JIL resolution is “impossible”, the other member of the bench, Saroj Rajware, observed, “Therefore, I am of the considered view that the votes cast by the home buyers in favour of the resolution or against the resolution shall be taken to represent the views of the class…” Meanwhile, JIL’s lenders are scheduled to meet on Thursday to consider NBCC’s revised bid for the firm.
Homebuyers and other financial creditors have 58.1% and 41.8% voting shares respectively in the CoC for JIL. As per the IBC, any important agenda has to have a minimum of 66% vote of approval to be passed. However, this threshold has eluded in as many as none resolutions moved by the CoC so far in the JIL case as homebuyers, totalling around 24,000, never came in and voted in requisite numbers. If resolution could not be found, JIL might proceed to to liquidation.
JIL’s lead banker, IDBI, argued before the NCLT that the percentage of votes cast in favour or against a particular voting item was to be calculated by taking into account only those votes that were actually cast and accordingly abstained votes should be disregarded in order to avoid liquidation of the company.
Source: Financial Express, May 9, 2019