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If the members refuse to participate in the CoC meeting, RP has no option but to approach the AA


The NCLAT held that If the CoC members having a majority voting share refuse to participate in the CoC meeting thereby causing a stalemate, the RP was correct in approaching the Adjudicating Authority for necessary directions.


The National Company Law Appellate Tribunal (NCLAT), New Delhi Bench comprising Justice Rakesh Kumar Jain, Judicial Member and Dr. Alok Srivastava, Technical Member were hearing an Appeal and held that If the two members having more than 96% voting share had refused to participate in the CoC meeting thereby causing a stalemate, the RP was correct in approaching the Adjudicating Authority for necessary directions to the Appellants to pay the CIRP costs and RP’s fees as decided by the CoC.


The present two appeals were filed by Operational Creditors being disposed of through the common judgment filed under sub-section 61(1) of the Insolvency and Bankruptcy Code, 2016 assailing the order of the Adjudicating Authority.


Facts:

The Applicant-Resolution Professional of the corporate debtor filed IA before the Adjudicating Authority seeking directions to the Income Tax Department and the Excise and Taxation Department, Government of Haryana to pay the CIRP dues and expenses by the Resolution Professional in proportion to its voting share in the Committee of Creditors.


The Appellants in both appeals were operational creditors of the corporate debtor. Both the Appellants were aggrieved by the fact that the 7th CoC meeting held in the CIRP of the corporate debtor, the respective shares of the Appellants in the CIRP cost were fixed and the Appellants were directed through the Impugned Order to pay them immediately. Thus, the Appellants in both the appeals have a similar grievance against the Impugned Order, and therefore, both the appeals captioned above were being disposed of through this common judgment.


Appellants’ Submission:

Learned Counsels for Income Tax Department and Excise and Taxation Department claimed that the decision taken in the 7th CoC meeting held on 6.12.2019 was taken in their absence and such decisions were not legal in view of the requirement stipulated in section 21(8) of IBC and also prejudicial to their interest.


NCLAT’s Analysis:

The Appellate authority noted that Section 21(8) of the IBC stipulates that all decisions of the CoC shall be taken by not less than 51% of the voting share in the CoC. The notice for the 7th CoC meeting was sent and delivered to both the Appellants viz. Income Tax Department and Excise and Taxation Department chose not to be present in the said meeting, whereupon the RP adjourned the meeting to hold it with their participation. It was also noted that both the Appellants again chose to be absent in the re-assembled 7th CoC meeting, which was taking place after being adjourned once, and wherein decisions regarding the CIRP cost, RP’s fees, etc. were taken. The Appellate Tribunal observed that in compliance with the decision taken, the other operational creditors have deposited their respective share of the CIRP cost, without raising any demur as has been claimed by the Learned Counsel for Respondent and also that both the Appellants have not challenged the decision taken in the 7th meeting of CoC in the stipulated time period.


The Appellate Authority were of the view that the erstwhile RP took necessary care to ensure the presence of the two most important members of the CoC viz. the Income Tax Department and Excise and Taxation Department, Government of Haryana, who jointly controlled a vote share of 96.756% in the CoC. We are also aware of the fact that if both these Appellants had chosen not to participate in the CoC meeting, any decision taken in this meeting would not have been taken with more than 51% voting share. Thus, compliance with section 21(8) of IBC would have an impossibility.


Appellate Tribunal noted that Regulation 22(2) and 22(3) of CIRP Regulations provide that when a meeting could not be held for want of quorum, the meeting automatically stands adjourned at the same time and place on the next day and regulation 22(3) provide that when the adjourned meeting takes place with the members attending the meeting, it shall be quorate, Thus, there was no illegality in either holding of the 7th meeting of CoC dated 6.12.2019 and in the decisions taken in the meeting regarding the payment of CIRP cost and RP fees. It was also reasonable and prudent to expect that if the two Appellants had refused to participate in the CoC meeting thereby causing a stalemate, the RP was correct in approaching the Adjudicating Authority for necessary directions to the Appellants to pay the CIRP costs and RP’s fees as decided by the CoC.


The Appellate Authority were of the view that RP and the CoC have acted in the true spirit of the law for fixing the shares of the operational creditors in the CIRP cost and RP’s fees (since there are no financial creditors) which were required to be deposited with the liquidator immediately. The Impugned Order did not suffer from any error and, therefore, needs no interference.


Thus, both Appeals were dismissed.


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