Beyond Yes and No: Role of Abstentions in Insolvency Proceeding

[Praveenya is a student at Gujarat National Law University.]

The question of how abstentions impact voting outcomes in insolvency proceedings has once again come to light with the decision of the Mumbai Bench of the National Company Law Tribunal (NCLT) in Oriental Bank of Commerce v. Shree Bhimeshwari Ispat Private Limited (Oriental Bank) which was decided on 3 July 2025. The tribunal was faced with the issue of whether creditors who abstain from voting on a resolution plan should still be factored into the denominator while computing the statutory threshold of 66% under Section 30(4) of the Insolvency and Bankruptcy Code 2016 (IBC / Code). 

The issue, though technical at first glance, has significant practical implications. Abstentions are not uncommon in committee of creditors (CoC) proceedings, arising from internal governance hurdles, indecision, or even deliberate strategic choice. Excluding abstentions lowers the bar, enabling resolution plans to be approved with thinner majorities, while including them raises the threshold, making approval more difficult. The voting dynamics within the CoC lie at the heart of India’s insolvency resolution process. While Section 30(4) of the IBC appears clear on its face, disputes often emerge when some creditors abstain from voting altogether. The key question that arises is whether the votes of abstaining members still be counted in the denominator while calculating the requisite 66% threshold or not. 

Decoding Section 30(4) 

Section 30(4) of the IBC provides that the CoC may approve a resolution plan “by a vote of not less than sixty-six per cent of voting share of the financial creditors.” Notably, the section does not use the phrase “present and voting”, a concept that appears elsewhere in the Code, for example, in Section 25A(3A), which governs voting by authorised representatives of specific creditor classes. This distinction has become central to the judicial reasoning that abstentions form part of the denominator.

The Insolvency and Bankruptcy Board of India (Insolvency Resolution Process For Corporate Persons) Regulations 2016 reinforce this interpretation. Regulation 25(5) allows creditors who are absent from a meeting to vote electronically, while Regulation 26 mandates electronic voting within a specified period. The underlying policy appears to be one of ensuring maximum participation and accountability among creditors and not one that treats abstention as a neutral act. The statutory scheme, therefore, envisions an inclusive process where each financial creditor’s vote, or lack thereof, affects the outcome.

Judicial Interpretations 

The Code’s silence on how abstentions should be treated has created ambiguity in regards to interpretation of the provision. Judicial interpretation of Section 30(4) has oscillated between two positions, one that includes abstentions in the denominator and another that confines the denominator to those present and voting. The inclusive approach which has now crystallized as the prevailing position, finds its strongest articulation in K Sashidhar v. Indian Overseas Bank (K Sashidhar). The Supreme Court held that courts cannot read words into a statute that Parliament has consciously omitted. Since Section 30(4) does not contain the phrase “present and voting”, the court concluded that the sixty-six per cent threshold must be computed on the total voting share of financial creditors, regardless of whether some abstain and that the CoC’s commercial wisdom must reflect the collective will of all creditors, not merely a subset who participate actively.

Building on K Sashidhar, the National Company Law Appellate Tribunal (NCLAT) in Saariga Construction Private Limited v. Arvind Kumar reaffirmed that abstentions cannot be excluded. In that case, only 52.02% of the voting share was cast in favour of the plan, while 47.9% abstained. The Appellate Tribunal held that the abstentions must still be included in the denominator, and since the 66% threshold was not achieved, the resolution plan stood rejected. The Mumbai NCLT’s decision in Oriental Bank adopted a similar stance, reiterating that creditors who abstain cannot later claim neutrality, as their silence directly influences the calculation of the majority threshold.

On the contrary, earlier decisions such as Tata Steel Limited v. Liberty House Group Pte Ltd. leaned towards excluding abstentions from the denominator. These decisions reasoned that including abstentions could allow passive or strategically indifferent creditors to block otherwise viable resolutions. Such an interpretation, they argued, would frustrate the Code’s objective of timely resolution and value maximization. According to this view, abstaining creditors should be treated as having chosen to stay outside the decision-making process and should neither help nor hinder the outcome.

Comparative Analysis with the United Kingdom  

Unlike India, the UK insolvency law adopts a “present and voting” model. Only participating creditors influence the vote. Rule 6.88 of the UK Insolvency Rules 1986 provides that at a meeting of creditors “a resolution is passed when a majority (in value) of those present and voting, in person or by proxy, have voted in favour of the resolution”. UK creditors, especially institutional lenders, demonstrate consistently high participation due to streamlined internal approval structures. Abstentions are therefore exceptional and not systemic. 

In the UK, since voting is by value, the value of the vote depends on the amount owned and not merely the head-count of creditors. Passive creditor behaviour is strongly discouraged whereby abstaining creditors risk being excluded from negotiations, repayment modelling, or influence over restructuring terms. In this manner, creditors who abstain are simply not considered part of the “present and voting” class and they do not influence the outcome. Unlike the UK, India’s framework treats every financial creditor’s share as part of the voting denominator, even when they abstain. This makes the Indian system far more sensitive to non-participation, often allowing abstentions to indirectly determine outcomes, something the UK model is structurally designed to avoid.

Practical Consequences 

Including abstentions in the denominator can paralyze the process, pushing viable companies into liquidation merely because the numerical threshold cannot be met despite strong support from active creditors. For instance, in M/s Sintex Plastics Technology Limited, the sole member of the CoC, RBL Bank, abstained from voting on the resolution plan submitted by an applicant and this led to no plan being approved. This ultimately pushed the company into liquidation since the statutory threshold was not met. 

Beyond procedural obstacles, abstention has also emerged as a strategic tool within the CoC. Creditors may consciously abstain from voting not because of uncertainty or lack of information, but as a deliberate negotiation tactic aimed at influencing outcomes without overt dissent. Abstention, in these cases, becomes a silent instrument of control within the procedural architecture of the IBC. It may therefore be justified to impose limited consequences on creditors who are abstaining on a regular basis. These could include treating such creditors as constructive dissent, thereby restricting such creditors to the liquidation value of their debt, or excluding their voting share from the denominator in subsequent rounds. 

However, this must be approached very cautiously, as not all abstentions are strategic, and penalising genuine abstentions, such as those arising from internal approvals, uncertainty, or conflict of interest, could discourage participation altogether. A calibrated solution would involve excluding abstentions from the denominator for voting computation, aligning India’s approach more closely with the “present and voting” model adopted in the UK, while simultaneously introducing targeted safeguards against abuse. This approach ensures that abstentions do no become a tool of procedural manipulation while preserving the autonomy and discretion that undermine creditor democracy under the IBC. 

Recommendations and Way Forward 

The current judicial position of including abstentions within the 66% threshold, though textually grounded, has created procedural rigidity and led to avoidable liquidations of otherwise viable companies. A reform that balances creditor democracy with procedural efficiency is therefore essential. Abstentions may be counted in the denominator only during the initial round of voting, preserving the collective nature of decision-making under the IBC. However, when creditors repeatedly abstain without valid reason, such abstentions could be excluded from the denominator in subsequent rounds to prevent procedural obstruction.  

Further, where evidence suggests that abstention has been used strategically, such creditors may be treated as constructive dissenters, limiting their entitlement to liquidation value recoveries under Section 30(2)(b). To ensure fairness, Resolution Professionals should be required to record and disclose the reasons for each abstention, allowing the NCLT to oversee whether continued abstention is justified. Legislative clarification could codify this conditional approach. By combining inclusion for genuine non-participation with exclusion for deliberate inaction, this framework preserves creditor autonomy while discouraging strategic abstentions. 

Conclusion 

In conclusion, abstentions should neither be automatically counted nor entirely disregarded within the CoC. A conditional inclusion model, which allows initial inclusion but limits the influence of repeated or strategic abstention, offers the most balanced reform under the IBC. Such an approach acknowledged creditor autonomy, while demanding accountability, ensuring that silence does not distort collective decision-making. By integrating disclosure, judicial oversight, and proportionate consequences, the insolvency framework can deter strategic abstentions. This middle path harmonizes efficiency with participation and advanced the Code’s fundamental objection, to facilitate timely, value-maximizing resolutions through genuine collective commercial wisdom.