- Apprentice Lawyer
- Legal Jobs
The Chennai Bench of the NCLT has called for ‘standard operating procedures’ to be followed by members of the committee of creditors (CoC), for determining the viability of resolution plans under the Insolvency and Bankruptcy Code. The order for developing procedures is directed towards members of CoC and requires the banking division of the Ministry of Finance to be consulted for it.
“However, one aspect is clear that the members of the CoC have rejected the resolution plan mechanically without application of mind, as if, they have not been interested to consider the same on merits, as there is no shred of evidence that the suitability and viability of the resolution plan has been considered on merits.”, recorded the NCLT in its order.
The order comes in the case of Ashok Magnetics, which was put into insolvency in 2017. An application was filed by the prospective resolution applicant, whose resolution plan was rejected by the creditors. The application was filed for consideration of the resolution plan.
The resolution applicants are the promoters of the Ashok Magnetics, which made them ineligible under Section 29A. However, Ashok Magnetics is an MSME and an exception was carved out for such class of companies under the IBC (Amendment) Ordinance, 2018. The offer made by the resolution applicant was also higher than the liquidation value of the company.
The NCLT, accordingly, directed the creditors to reconsider the plan submitted in view of the changed law. The creditors, despite the change in law, recorded 29A ineligibility as one of the grounds for rejection of the resolution plan.
Apart from citing ineligibility of the resolution applicants, the creditors also gave reasons which the NCLT found no merit in. The NCLT condemned the approach adopted by the creditors, and passed an order of liquidation since the 270-day threshold was over.
“In these circumstances, it will be an exercise in futility to remand the matter to the RP and CoC for reconsideration of the resolution plan, inspite of the direction of this Authority, as mentioned hereinabove”, recorded the NCLT.
(Read the order)