IBC UPDATE | NCLT ALLOWED
SUCCESSFUL RESOLUTION APPLICANT TO HANDOVER THE POSSESSION OF THE UNDERTAKING
BACK TO COC
In one of the unique cases, National Company Law Tribunal, Mumbai (NCLT) recently passed an order in Mandhana Industries Limited (MIL) – Insolvency Case allowing the successful resolution applicant to handover the control and possession of the company back to the committee of creditors (COC).
Background
Pursuant to an application filed under Section 7 of the Insolvency and Bankruptcy Code, 2016 (IBC), NCLT had allowed the resolution plan and Formation Textiles LLC (Resolution Applicant) was held as a successful resolution applicant. The admitted claim by the Resolution Professional (RP) was of Rs. 1,183 Crores approximately. However, the said resolution plan was later challenged before the NCLT subsequently on following issues:
- First application was filed by the Resolution Applicant on the
ground that it had not been provided with the entire information as is
necessary for complying with its terms and obligations under the
resolution plan;
- Second application was filed by RP for claiming the Corporate Insolvency Resolution Process (CIRP) costs; and
- Last application was filed by Bank of Baroda, on behalf of the
Consortium, seeking inter alia the possession of the undertaking, which
is to be then handed over to a third party, to ensure proper maintenance
and that the value of the asset is not depleted.
Arguments before NCLT
In the first application filed by the Resolution Applicant, it has been contended that the forensic audit report of the undertaking was not shared with it by the RP. Thus, it had not been provided with essential information which was disclosed in the Report, such as information with regard to the trading business of MIL, which was suspected to be based on sham and bogus sales. Further, it was contended that several financial figures reported were bogus and false.
It was argued that the Applicant’s bid and the resolution plan were based on misrepresentation and concealment of material and relevant facts. Thus, the Resolution Applicant had sought an order quashing and setting aside the Resolution Plan. It was also submitted that the Applicant was willing to handover the possession of the undertaking, without prejudice to its rights and contentions.
During hearings of the applications, the RP and Consortium of Banks suggested that the Resolution Applicant handover the possession of the undertaking in view of its application challenging the Resolution Plan itself. Further, it was contended on behalf of the consortium of Banks that the unit has been handed over to the Successful Applicant on an ‘as is where is’ basis and the said Applicant had defaulted in making the payments as per the resolution plan.
NCLT View:
On the basis of these arguments made on behalf of all the concerned parties, NCLT held that it would be necessary to hear all the applications separately and decide each on its merits, but in the meanwhile, NCLT agreed to give interim relief to the parties. Pending the final disposal and after perusing the material on record, it proceeded to order that the possession of the undertaking be handed over by the Resolution Applicant to the COC, who in turn would hand it over to the erstwhile RP. The erstwhile RP is to continue in the same position and be vested with the rights and duties as provided under Section 14 of the IBC.
Further, such handover would be subsequent to an independent agency / person taking the inventory and examining the status and working condition of the machines of the undertaking.
MHCO Comment: This is an interesting development under IBC. From this judgment, we can infer that upon any material misrepresentation, a successful resolution applicant could be entitled to terminate the Resolution Plan on approaching the NCLT.
In the first application filed by the Resolution Applicant, it has been contended that the forensic audit report of the undertaking was not shared with it by the RP. Thus, it had not been provided with essential information which was disclosed in the Report, such as information with regard to the trading business of MIL, which was suspected to be based on sham and bogus sales. Further, it was contended that several financial figures reported were bogus and false.
It was argued that the Applicant’s bid and the resolution plan were based on misrepresentation and concealment of material and relevant facts. Thus, the Resolution Applicant had sought an order quashing and setting aside the Resolution Plan. It was also submitted that the Applicant was willing to handover the possession of the undertaking, without prejudice to its rights and contentions.
During hearings of the applications, the RP and Consortium of Banks suggested that the Resolution Applicant handover the possession of the undertaking in view of its application challenging the Resolution Plan itself. Further, it was contended on behalf of the consortium of Banks that the unit has been handed over to the Successful Applicant on an ‘as is where is’ basis and the said Applicant had defaulted in making the payments as per the resolution plan.
NCLT View:
On the basis of these arguments made on behalf of all the concerned parties, NCLT held that it would be necessary to hear all the applications separately and decide each on its merits, but in the meanwhile, NCLT agreed to give interim relief to the parties. Pending the final disposal and after perusing the material on record, it proceeded to order that the possession of the undertaking be handed over by the Resolution Applicant to the COC, who in turn would hand it over to the erstwhile RP. The erstwhile RP is to continue in the same position and be vested with the rights and duties as provided under Section 14 of the IBC.
Further, such handover would be subsequent to an independent agency / person taking the inventory and examining the status and working condition of the machines of the undertaking.
MHCO Comment: This is an interesting development under IBC. From this judgment, we can infer that upon any material misrepresentation, a successful resolution applicant could be entitled to terminate the Resolution Plan on approaching the NCLT.
The views expressed in this update are personal
and should not be construed as any legal advice. Please contact us directly on
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