In a very recent judgment, the Hon’ble NCLAT in the matter of Shweta Vishwanath Shirke & Ors. vs. Committee of Creditors, while dismissing the Order for liquidation of M/s Sterling Biotech, passed by the Adjudicating Authority, Mumbai Bench, has held that Section 29A of IBC is not applicable for entertaining/considering an application under Section 12A of IBC.
The NCLAT while deciding the Appeals observed that the application moved under Section 12A having been approved by the Committee of Creditors (in short CoC) by more than 90% of the voting share as required under the Code, it was not open to the Adjudicating Authority to reject the same and that too on the ground that the promoter, who has moved the Application under Section 12A is ineligible under Section 29A to file a Resolution Plan.
SEQUENCE OF EVENTS
11.6.2018 – Pursuant to an Order dated 11.06.2018 passed by the Adjudicating Authority, Mumbai, in an Application filed under Section 7 of the I & B Code by Andhra Bank, M/s Sterling Biotech underwent Corporate Insolvency Resolution Process (hereinafter referred as CIRP)
8.8.2018 – The members of CoC received a revised offer from the promoter of the Corporate Debtor for a one-time settlement.
27.2.2019 – 13th CoC meeting: Andhra Bank submitted an Application under Form FA as prescribed under Regulation 30A(1) of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations for the withdrawal of the CIRP of the Corporate Debtor.
The Resolution i.e., OTS was rejected as it received 89.5% of the affirmative vote of the CoC as against the requisite 90% as prescribed under Section 12A of the Code.
As there was no resolution plan and the withdrawal of the CIRP had failed, the Resolution authorizing the RP to file a liquidation application was put on vote, however, the same was rejected.
5.3.2019 – 14th CoC meeting: Andhra Bank submitted a fresh Form FA with all the details of the OTS offer.
The fresh resolution for withdrawal of the CIRP U/s 12A was put to vote and the same received 90.32% of affirmative votes
Application U/s 12A filed before the Adjudicating Authority.
Whether Section 29A of the ‘I&B Code’ is applicable to the Applicant, if he intends to withdraw the Petition under Section 7 or 9, if the Committee of Creditor, approves a proposal with 90% voting share, in terms of Section 12A?
ARGUMENTS OF UNION OF INDIA THROUGH MCA
The Union of India through Ministry of Corporate Affairs (MCA) has opposed the Application U/s 12A of the Code for withdrawal of the CIRP on the ground that if the withdrawal of the CIRP process is permitted by the Adjudicating Authority, then the promoters of the Corporate Debtor, i.e., SBL will again get control over the Corporate Debtor at a discount.
Further, the MCA has opposed the Application on the ground that promoters of the Corporate Debtor are a willful defaulters and absconders and therefore they are ineligible under Section 29A of the I & B Code.
OBSERVATION OF THE ADJUDICATING AUTHORITY
The Adjudicating Authority, Mumbai Bench while considering the arguments of the Union of India through MCA has held that case in hand is an attempt by the promoters to defeat the legislative provisions of Section 29A under the guise of OTS with approval of 90.32% vote share if CoC and further raised a question of doubt in the functioning of the CoC.
JUDGMENT AND ANALYSIS
The while considering the facts and the legal provisions involved in the matter, the Hon’ble NCLAT took note of the Insolvency Law Committee Report, 2018 vide which Section 12A of the I&B Code was inserted and the Judgment passed by the Hon’ble Supreme Court of India in the matter of Swiss Ribbons Pvt. Ltd. & Anr. vs. Union of India & Ors.-, whereby the Hon’ble Supreme Court had considered the stages in which an application can be withdrawn including Section 12A.
The NCLAT while taking note of the same held that that the Promoters/Shareholders are entitled to settle the matter in terms of Section 12A and in such case, it is always open to an applicant to withdraw the application under Section 9 or 7 of the I & B Code on the basis of which the Corporate Insolvency Resolution Process was initiated.
The NCLAT while allowing the Appeal held that Section 29A is not applicable for entertaining/considering an application under Section 12A as the Applicants are not entitled to file application under Section 29A as ‘resolution applicant’.
The Corporate Insolvency Resolution Process’ was initiated pursuant to an application under Section 7 filed by the ‘Andhra Bank’ (Appellant herein).
The application under Section 12A having been approved by the ‘Committee of Creditors’ more than 90% of the voting share, it was not open to the Adjudicating Authority to reject the same and that too on a ground of ineligibility under Section 29A, is not applicable.
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About Author:- Tannya Baranwal Gupta, Advocate