The Hon'ble National Company Law Appellate Tribunal (“NCLAT”) rendered a significant judgment recently, in the matter of Jubilee Metal Pvt. Ltd. Vs. Mr. Surendra Raj Gang Resolution Professional of Metenere Ltd. & Anr. The case revolves around the Corporate Insolvency Resolution Process (“CIRP”) initiated against Jubilee Metal Pvt. Ltd. (“CD”) and the subsequent challenges arising from changes in the directorship and shareholding structure of the successful resolution applicant (“SRA”).
Background
The CIRP against CD commenced on September 25, 2020, following the order of the Adjudicating Authority (“AA”). The Committee of Creditors (“CoC”) approved the resolution plan submitted by the SRA on July 27, 2021, with an overwhelming 92.54% majority. However, complications arose when the Resolution Professional (“RP”) was informed by a director of one of the SRA's group companies about changes in the directorship and constitutionality pattern of the resolution applicant. The resolution plan had been approved with certain conditions and undertakings from the SRA, promising not to alter the company's structure.
Subsequently, two Interlocutory Applications (“IAs”) were filed before the AA by the RP – one on behalf of the CoC seeking withdrawal of the resolution plan and the other seeking an extension or exclusion of the CIRP period. On November 21, 2023, the AA dismissed the IAs seeking approval of the resolution plan but allowed the IA seeking withdrawal. The SRA, dissatisfied with the AA's decision, appealed to the NCLAT.
Issues before Hon'ble NCLAT
The primary issue for the NCLAT's consideration was whether the CoC could seek the withdrawal of a resolution plan when there were implications of selling the plan to a third party due to subsequent changes in the SRA's shareholding.
Findings & Observations of Hon'ble NCLAT
In its judgment, the NCLAT delved into the intricate corporate structure of the SRA, a company interconnected through a chain of subsidiaries ultimately owned by Mr. Gaurav Gupta. Notably, after the change in directorship, Mr. Gaurav Gupta ceased to be the director of 'Shoora Capital FZE,' a pivotal entity in the chain. The NCLAT highlighted the presence of a specific clause in the Letter of Intent (“LoI”) and an accompanying undertaking/addendum, wherein the SRA committed not to dilute its investment in any subsequent entities.
While acknowledging that the CoC generally cannot seek the withdrawal of a resolution plan once approved, the NCLAT made an exception in cases where the SRA breaches the terms and conditions, including the undertaking given. The tribunal stated, "The very basis and substratum of the Resolution Applicant which led the CoC to approve the Resolution Plan has been knocked out by changing the shareholding and directorship of the Resolution Applicant."
The NCLAT concluded that the SRA had indeed breached the addendum and the conditions outlined in the LoI. Importantly, it pointed out that Regulation 36B (4F) only contemplates the forfeiture of performance security under specific conditions but does not exclude forfeiture in other circumstances as contemplated in the Request for Resolution Plans (RFRP). Thus, the tribunal affirmed that forfeiting the performance security aligned with the RFRP.
Our Take
In this landmark judgment, the NCLAT clarified the circumstances under which the CoC could seek the withdrawal of a resolution plan. The tribunal emphasized the sanctity of conditions and undertakings given by the SRA and held that changes in shareholding and directorship that undermine the basis of the approved plan could warrant withdrawal. This decision underscores the importance of upholding the integrity of the resolution process and ensuring that approved plans align with the commitments made during the CIRP.
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