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In a significant ruling, the Mumbai Bench of National Company Law Tribunal (NCLT) asked the Successful Resolution Applicant that took over Mandhana Industries Limited (MIL), to handover possession of the undertaking back to Committee of Creditors (CoC).
A Division Bench of Judicial Member Bhaskara Pantula Mohan and Technical Member Rajesh Sharma passed an interim measure in view of the applications filed by parties challenging Resolution Plan in Textile company Mandhana Industries Limited (MIL) Insolvency matter.
On November 30, last year, the NCLT had allowed Resolution Plan of Formation Textiles LLC, a US based company with total admitted claims by Resolution Professional (RP) of nearly Rs. 1,183 Crores. Subsequently, the Resolution Plan was challenged before the Tribunal.
In this regard, the NCLT noted that it received three applications by erstwhile Resolution Professional (RP), successful Resolution Applicant Formation Textiles and Committee of Creditors (CoC) of Mandhana Industries Limited.
One of the applications claimed the Corporate Insolvency Resolution Process (CIRP) costs and another filed by Formation Textiles challenged the resolution plan on the ground that entire information had not been provided to them for complying with the terms and conditions of the resolution plan. It was contended that the Forensic Audit Report was not given to the successful Resolution Applicant by the RP.
It was further submitted that the Forensic Report later revealed that the trading business of MIL was found to be suspect and based on sham and bogus sales, claimed Formation Textiles LLC. The Formation Textiles contended that financial figures including nearly Rs. 1000 Crores trading component as shown was revealed to be bogus.
In view of this, it sought to quash the order that allowed the Resolution Plan and went on to state,
“Such information has resulted in the entire process being vitiated and the Applicant’s bid having been taken on the basis of misrepresentation and by concealment of material and relevant facts.”
The Tribunal further noted that during earlier hearing, the suggestion was made to the Formation Textiles whether it can handover the possession in view of its application challenging Resolution Plan itself.
In this regard, Senior Counsel JP Sen submitted that Formation Textiles would not have objection to handover the possession without prejudice to the rights and contentions.
Furthermore, the third application was filed by the Bank of Baroda led consortium seeking possession of the Company and to give it to the third party with proper maintenance and to see if the value of the asset is depleted.
Senior Counsel Gaurav Joshi instructed by Cyril Amarchand Mangaldas representing consortium of Banks contended that the unit has been handed over to the Successful Applicant on ‘as is where is’ condition and the said applicant had defaulted in making the payments as per resolution plan.
The Tribunal, in view of the allegations and counter allegations made against both the parties, noted that separate hearing is required to decide the merits of such applications.
In the meanwhile, after perusing the material on record, it proceeded to order an interim measure and held,
“In the meanwhile, as an interim measure, it is prudent on the part of this Bench, after going through an elaborate discussion during the course of the hearing, that the possession be handed over to the CoC, who in turn will hand over the same to the erstwhile RP.”
It went on to note,
“Therefore, we hereby order that the successful Resolution Applicant shall hand over the possession to the CoC, after an independent agency or a person takes the inventory and examine the status and the working condition of the machines and then the CoC, in turn shall handover the same to erstwhile RP.”
Interestingly, the Tribunal noted that entire process of taking inventory and handing over the possession shall be video graphed and shall be taken in the presence of both the parties.
With this, the Bench ordered restoration of the CIRP and asked erstwhile RP to continue as Resolution Professional. Furthermore, the Bench left it to the CoC and RP to decide whether they run the undertaking or hand it over to the third party.
In view of this, the Tribunal ruled,
“We hereby direct the CoC and the RP to exercise maximum prudence and see that the value of the asset is not depleted and production is also continued and the unit runs as a going concern, so that the workers, employees and all the stakeholder’s interest is protected.”
The Tribunal has posted the matter for further hearing on February 3, 2020.
Along with Senior Counsel Sen, advocates Aditya Thakker and Sid Pamecha appeared for the Resolution Applicant. They were instructed by advocates Dharmapal Dave, Hemant Salvi, Akshay Naik and Ajinkya Patil of Naik Patil Salvi & Associates.
[Read Order here]