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NCLT Has No Jurisdiction To Enquire Into Justness Of Rejection Of The Resolution Plan

In CIVIL APPEAL NO.10673 OF 2018, K. Sashidhar vs. Indian Overseas Bank, appeal was filed before the Supreme Court against the decision of the NCLAT affirming the order of the NCLT wherein the Ld. NCLT had rejected the resolution plan approved by the COC. The ground for rejection was that the requirement of approval of resolution plan by vote of not less than 75% (as it was before the amendment of 2018) of voting share of financial creditors is mandatory and the said minimum number was not met in this case.

The appeal was filed on the ground that while the act mandated a minimum of 75% of the voting share, the same has been reduced to 66% by the amendment of 2018 during the pendency of the appeal and further, the percentage of votes for approval (55.73%) of the resolution proposal and the voting share rejecting the proposal was only 15.15%. Taking these votes only, the proportionate percentage of the voting share for approval will obviously be more than 75% (i.e. approximately 78.63%). 

The Supreme Court decided that the minimum percentile of votes for approval of a resolution was mandatory and that the amendment under consideration pertaining to Section 30(4), is to modify the voting share threshold for decisions of the CoC and cannot be treated as clarificatory in nature. It changes the qualifying standards for reckoning the decision of the CoC concerning the process of approval of a resolution plan. The rights/obligations crystallized between the parties and, in particular, the dissenting financial creditors in October 2017, in terms of the governing provisions can be divested or undone only by a law made in that behalf by the legislature. There is no indication either in the report of the Committee or in the Amendment Act of 2018 that the legislature intended to undo the decisions of the CoC already taken prior to 6th day of June, 2018. It is not possible to fathom how the provisions of the amendment Act 2018, reducing the threshold percent of voting share can be perceived as declaratory or clarificatory in nature. In such a situation, the NCLAT could not have examined the case on the basis of the amended provision. For the same reason, the NCLT could not have adopted a different approach in these matters. Hence, no fault can be found with the impugned decision of the NCLAT.

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