NCLT Mumbai: Voting Share of Creditors Who Abstain Cannot Be Excluded While Determining 66% Majority for Resolution Plan Approval
Pranav B Prem
The Mumbai Bench of the National Company Law Tribunal (NCLT), comprising Ms. Lakshmi Gurung (Judicial Member) and Mr. Anil Raj Chellan (Technical Member), held that a Resolution Professional (RP) cannot exclude the voting share of a member who abstains from voting while computing the requisite voting percentage under Section 30(4) of the Insolvency and Bankruptcy Code, 2016 (IBC). The Tribunal, accordingly, dismissed the application seeking approval of the resolution plan and remitted the matter back to the Committee of Creditors (CoC) for reconsideration.
Background
The application was filed by Mr. Rohit Jindal, a suspended director and shareholder of Shree Bhimeshwari Ispat Private Limited (“Corporate Debtor”), under Section 60(5) of the IBC. The CIRP was initiated by Oriental Bank of Commerce under Section 7 of the Code, and the Interim Resolution Professional (IRP) was later replaced by Mr. Yashpal Singh as the RP.
The RP had invited expressions of interest and issued a final list of Prospective Resolution Applicants (PRAs), which included Khatav Man Taluka Agro Processing Limited. After multiple CoC meetings and discussions on the feasibility and viability of the resolution plan submitted by Khatav Man Taluka, the CoC decided to put the plan to e-voting after the 8th meeting.
Out of the total voting share, 61.31% of the financial creditors voted in favor of the plan. However, the State Bank of India (SBI), holding 8.32% voting share, chose to abstain. The RP, by excluding SBI’s share from the total, computed the effective approval percentage as 66.87% (61.31 out of 91.68) and declared that the resolution plan had achieved the threshold required under Section 30(4).
Submissions by the Applicant
Mr. Jindal argued that the RP had incorrectly calculated the voting percentage. He submitted that under Section 30(4), a resolution plan can be approved only by a vote of not less than 66% of the total voting share of the financial creditors. Thus, even though 61.31% voted in favor, the threshold was not achieved. He contended that abstaining votes, such as that of SBI, cannot be excluded when computing the total voting share, as such exclusion effectively dilutes the statutory requirement.
In support of this, he relied on the order of the NCLT Chennai Bench in I.A. (IBC) No. 649/CHE/2022 in IBA/386/2020, where it was held that abstaining creditors' votes must be included in the total count for the purpose of determining the requisite majority.
Submissions by the Respondent
The RP argued that the CoC had provided three options—“Approve,” “Reject,” and “Abstain”—during the e-voting. Only those creditors who actively voted either in favor or against should be counted in the denominator, while abstaining creditors should be excluded. The RP emphasized that SBI was present but chose to abstain, and its share should not influence the outcome of the voting.
In support of this contention, reliance was placed on the NCLAT decisions in IDBI Bank Ltd. v. Anuj Jain [Company Appeal No.536 of 2019] and Tata Steel Ltd. v. Liberty House Group Pte. Ltd [Company Appeal (AT) (Insolvency) No. 198 of 2018], where it was held that the voting share of non-participating or abstaining members could be excluded in calculating the requisite majority.
The RP also challenged the locus standi of Mr. Jindal, arguing that as a suspended director, he had no right to challenge the CoC-approved resolution plan, and that such right rested only with a dissenting financial creditor such as SBI.
NCLT’s Observations and Findings
The Tribunal carefully examined the provisions of Section 30(4) and relevant judgments. It noted that the statutory mandate clearly requires a resolution plan to be approved by not less than 66% of the voting share of the financial creditors, without carving out any exception for abstaining creditors.
Referring to K. Sashidhar v. Indian Overseas Bank & Ors. [(2019) 12 SCC 150], the NCLT reiterated that the approval must be by the prescribed percentage of the total voting share, and not merely the percentage of those who choose to cast their vote. The Tribunal emphasized that “the fact that substantial or majority percent of financial creditors have accorded approval to the resolution plan would be of no avail, unless the approval is by a vote of not less than 66%.”
Regarding the decisions cited by the RP, the Tribunal held that those rulings dealt with members who were absent from the CoC meetings entirely, not ones who attended and abstained. Since SBI attended the meeting through electronic means and was part of the quorum, its voting share could not be disregarded in the computation.
The Tribunal also dismissed the objection regarding locus standi. It relied on the Supreme Court's judgment in Vijay Kumar Jain v. Standard Chartered Bank [(2019) 1 SCR 779], which affirmed that a suspended director is vitally interested in the resolution process and is entitled to challenge a resolution plan before the Adjudicating Authority.
Conclusion
The NCLT held that the RP had wrongly excluded SBI’s voting share while computing the total, and as a result, the resolution plan did not meet the threshold required under Section 30(4) of the IBC. It further clarified that the statutory requirement of approval by not less than 66% of all financial creditors' voting share is mandatory and cannot be diluted by excluding abstentions. Consequently, the Tribunal dismissed the application for approval of the resolution plan and remitted the matter back to the CoC for fresh consideration in accordance with law.
Appearance
Applicant: Counsel Mr. Nausher Kohli i/b Adv. Gaurav Raj Shrawat
Respondent: Adv. Prashansa Agarwal a/w Kunal Chheda appeared for RP
State Bank of India: Counsel appeared but did not mark attendance. (CoC member)
Cause Title: Oriental Bank of Commerce V. Shree Bhimeshwari Ispat Private Limited
Case No: IA 141/2023 IN CP (IB) No. 4550/MB-II/2018
Coram: Ms. Lakshmi Gurung [Member (Judicial)], Shri Anil Raj Chellan [Member (Technical)]
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