Majority of Creditors in COC will Call the shots

Case Law

M/s Raj Oil Mills Vs M/s Edelweiss Asset Reconstruction Company, NCLT Mumbai

Fact of the Case

CD file an application for insolvency process u/s 10 of the I&B Code, and petition was accepted and IRP was appointed to conduct the proceedings. Committee of creditors was formed in which 2 major creditors by value holds 61.84 per cent (M/s Edelweiss ARC- 53.52 percent and IFCI factor-8.32 per cent). A dead-lock situation in respect of appointment of resolution professional where these two major creditors wanted to appoint another resolution professional in place of existing IRP but does not have clear majority to do so.

Legal Provision

Section 22(2) of I&B Code, 2016 prescribed that the committee of creditors may by a majority vote of not less than 75 per cent of the voting share of the financial creditors either to resolve to appoint the IRP as a resolution professional or to replace the IRP by another Resolution Professional.

NCLT Decision

Allowed the application filed by Edelweiss to appoint to new Resolution Professional even having less than 75 per cent voting shares in COC, following were the finding

1. Financial Creditor who is the largest stakeholder in a company should be heard before taking any decision on selection of IP.
2. The fixation of 75 per cent voting share itself portray a clear intention of the legislature that financial creditors having largest percentage of stake should be given preference over the stakeholder having nominal percentage of voting rights.
3. More ever, the term “may” used in the section has prescribed a jurisdiction to deal with the issue of percentage of voting share depending upon the facts and circumstances of the case.
4. Same findings were also noted by the Kolkata bench in the case of EARC Trust vs Shree Metaliks Limited.

Decision by: NCLT, Mumbai