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In yet another first for the newly installed insolvency regime in India, the Kolkata Bench of the NCLT has permitted sale of an asset by a corporate debtor, during moratorium period.
Judicial member Vijai Pratap Singh has permitted sale of 60 windmills of Gujrat NRE Coke Limited, the Corporate Debtor. An amount of Rs. 180 crore will be realised from this sale, marginally softening the Rs. 4,600 crore debt of the company.
The application for sale was moved by the lead financial creditor, State Bank of India (SBI) under Section 60(5) of the Insolvency and Bankruptcy Code, 2016 (Code). The second prayer made to the NCLT was to distribute the sale proceeds amongst the members of the Joint Lenders Forum (JLF).
The application to initiate insolvency process, though, was triggered by the Corporate Debtor itself under Section 10 of the Code. The application, declaring a moratorium of 180 days prohibiting the transfer of any assets, was admitted on April 7, 2017 .
However, much before insolvency was triggered, the JLF which was constituted in October 2013, had through a Master Restructuring Agreement decided upon the sale of windmills of the corporate debtor. The sale process had reached a point where 25% of the total consideration had been paid by the selected bidders with a bank guarantee for the 75% balance, and business transfer agreement (BTA) was also entered into.
And while the BTA was entered into just before the insolvency application was admitted, the subsequent declaration of moratorium created a new barrier for the sale of windmills.
The corporate debtor, unable to pay its debts to the Suzlon Global Services Ltd, the company responsible for the maintenance of windmills, found itself in a position where the maintenance agreement was terminated. In the absence of maintenance, the rapidly diminishing value of the windmills necessitated prompt action by the Committee of Creditors – which unanimously voted for the sale of windmills, in its very first meeting on May 5, 2017.
Arguing counsel for SBI, Rishav Banerji, brought NCLT’s attention to Regulation 29 of the IBBI ((insolvency resolution process for corporate persons) Regulations, 2016, which allows sale of unencumbered assets of value less than 10% of the total claims. This was read along with Section 20(2)(e) of the Code, which allows the resolution professional to take all steps necessary to keep the corporate debtor a going concern.
The NCLT ruled,
“Denial of approval may cause economic loss and in connection to the Creditors, Corporate Debtor as well as to the Prospective buyers. Therefore, I am inclined to permit RP to complete the proposed sale transaction initiated by him”
However, the NCLT was not inclined to permit distribution of proceeds amongst the JLF members alone. While rejecting this prayer, the NCLT noted,
“Considering that Corporate Insolvency Resolution Process is in progress and not yet finalised it is not fair and just to allow the said prayer of the applicant at this stage. It is to be decided upon finalisation of the process by the RP. If it is allowed at present, it would cause great injustice to the Corporate Debtor as well as to the unsecured creditors.”
SBI was represented by Souvik Mazumdar, the Advocate on Record, who engaged Rishav Banerjee for arguing the matter on behalf of SBI as their counsel.
(Read the order)