Companies ActNCLTRulingsTribunal & Appellate

NCLT in exceptional circumstances doesn’t allow MSME to regain control of the Corporate Debtor

Saravana Global Holdings Ltd. & Anr. vs. Bafna Pharmaceuticals Ltd. & Ors.

NCLT dismisses appeal against order of Adjudicating Authority approving Resolution Plan of Corporate Debtor; says that it is open to the ‘Committee of Creditors’ to defer the process of issuance of ‘Information Memorandum’, if the Promoter of MSME offers a viable and feasible plan maximising the assets of the ‘Corporate Debtor’ and balancing all the stakeholders.

In the present appeal, the order passed by the Adjudicating Authority which approved the improved ‘Resolution Plan’ of ‘M/s. Bafna Pharmaceuticals Limited’- (‘Corporate Debtor’), a Micro, Small & Medium Enterprises (‘MSME’) which had been approved by the Committee of Creditors, is being challenged by ‘Saravana Global Holdings Ltd.’ along with Mrs. P. Shobha (Appellants) who submit that they were interested to submit their ‘Resolution Plan’ but no opportunity was given to them to file the same. Appellants aver that the impugned order has been passed approving the ‘Resolution Plan’ without complying the mandatory provisions of the ‘I&B Code’ and Respondents have failed to comply with the provisions prescribed under Section 25 (2)(h) and Section 29 of the I&B Code. Respondents submit that  requirements under the ‘I&B Code’ have been complied with by the ‘Interim Resolution Professional’ and ‘Resolution Professional’, more specifically the ‘Information Memorandum’ was prepared in compliance with section 25(2) (g) and the same were furnished to the members of ‘Committee of Creditors’ on obtaining the Non-Disclosure Agreement.

NCLT relies on the SC decision in “Swiss Ribbons Pvt. Ltd. & Anr. vs. Union of India & Ors.─ 2019 SCC Online SC 73” wherein SC holds that, 

As is discernible, the Preamble gives an insight into what is sought to be achieved by the Code. The Code is first and foremost, a Code for reorganization and insolvency resolution of corporate debtors. Unless such reorganization is effected in a time-bound manner, the value of the assets of such persons will deplete. Therefore, maximization of value of the assets of such persons so that they are efficiently run as going concerns is another very important objective of the Code. This, in turn, will promote entrepreneurship as the persons in management of the corporate debtor are removed and replaced by entrepreneurs. When, therefore, a resolution plan takes off and the corporate debtor is brought back into the economic mainstream, it is able to repay its debts, which, in turn, enhances the viability of credit in the hands of banks and financial institutions. Above all, ultimately, the interests of all stakeholders are looked after as the corporate debtor itself becomes a beneficiary of the resolution scheme – workers are paid, the creditors in the long run will be repaid in full, and shareholders/investors are able to maximize their investment. Timely resolution of a corporate debtor who is in the red, by an effective legal framework, would go a long way to support the development of credit markets. Since more investment can be made with funds that have come back into the economy, business then eases up, which leads, overall, to higher economic growth and development of the Indian economy. What is interesting to note is that the Preamble does not, in any manner, refer to liquidation, which is only availed of as a last resort if there is either no resolution plan or the resolution plans submitted are not up to the mark. Even in liquidation, the liquidator can sell the business of the corporate debtor as a going concern”. 

Hence, NCLT mentions that ‘I&B Code’ envisages maximization of value of the assets of the ‘Corporate Debtor’ so that they are efficiently run as going concerns and in turn, will promote entrepreneurship. The preamble does not, in any manner, refer to liquidation, which is only availed of as a last resort if there is either no ‘Resolution Plan’ or the ‘Resolution Plan’s submitted are not up to the mark.

 NCLT further holds that,   

“‘Corporate Debtor’ is a ‘MSME’ and the promoters are not ineligible in terms of Section 29A of the ‘I&B Code’. Therefore, it is not necessary for the ‘Committee of Creditors’ to find out whether the ‘Resolution Applicant’ is ineligible in terms of Section 29A or not.”

NCLT states that the ‘Committee of Creditors’ is to consider the feasibility, viability and such other requirements as has been specified by the Board. If it proposes maximisation of the assets and is found to be feasible, viable and fulfil all other requirements as specified by the Board, the company being MSME, it is not necessary for the ‘Committee of Creditors’ to follow all the procedures under the ‘Corporate Insolvency Resolution Process’. 

NCLT further observes that, “the Parliament with specific intention amended the provisions of the ‘I&B Code’ by allowing the Promoters of ‘MSME’ to file ‘Resolution Plan’ and such intention of the legislature shows that the Promoters of ‘MSME’ should be encouraged to pay back the amount with the satisfaction of the ‘Committee of Creditors’ to regain the control of the ‘Corporate Debtor’ and entrepreneurship by filing ‘Resolution Plan’ which is viable, feasible and fulfils other criteria as laid down by the ‘Insolvency and Bankruptcy Board of India’.NCLT thus, holds that in exceptional circumstances, if the ‘Corporate Debtor’ is MSME, it is not necessary for the Promoters to compete with other ‘Resolution Applicants’ to regain the control of the ‘Corporate Debtor’.

In view of the fact that the ‘Resolution Applicant’ is the Promoter of Corporate Debtor , MSME, NCLT holds that it is open to the ‘Committee of Creditors’ to defer the process of issuance of ‘Information Memorandum’, if the Promoter of MSME offers a viable and feasible plan maximising the assets of the ‘Corporate Debtor’ and balancing all the stakeholders. For such purpose, it is not required to follow all the procedure as the case for accepting the proposal under Section 12A of the ‘I&B Code’. 

NCLT also declines to give opportunity to the Appellant to file its offer as one of the Director of the Appellant has been declared ‘NPA’ by the ‘State Bank of India’, which is the lead Bank of the ‘Committee of Creditors’.

Therefore, NCLT dismisses the appeal.

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