The National Company Law Tribunal has recently held that an automatic waiver or abetment of legal proceedings that may be pending against or by the Corporate Debtor cannot be allowed in a Resolution Plan under the Insolvency & Bankruptcy Code, 2016.

The Tribunal's decision came out in Reliance Commercial Finance Ltd v VS Texmills Pvt Ltd.

CASE BACKGROUND

Reliance Commercial Finance Ltd. had filed an application under Section 7 IBC seeking initiation of Corporate Insolvency resolution process against the Corporate Debtor VS Texmills Pvt Ltd.

Upon the admission of the plea in Jan, an Interim Resolution Professional (IRP) was appointed.

Then in Feb, claims were collated and meeting of the Committee of Creditors was called. The IRP was appointed as the Resolution Professional.

During the process, the two entities submitted their Expression of Interest to the Resolution Professional.

However, after one of the applicants withdrew their resolution plan, the remaining resolution plan submitted by Chamaria Fashions Pvt Ltd’s was discussed by the CoC in June 2019.

Meanwhile, the CIRP period was extended by another 90 days. Eventually, the resolution plan of Chamaria Fashions was approved by the CoC in October 2019 with a majority voting share of 92.44%.

The Resolution Professional thus filed the instant application under Section 30(6) for approval of the Chamaria Fashions resolution plan in terms of Section 31(1) IBC and regulation 39(4) of the CIR Regulations.

When the matter came to NCLT, it perused the procedure followed during the CIRP. The resolution plan as well as the payment schedule proposed therein. It stated that the approval of the resolution was as per the law under Clauses (a) to (f) in Section 30(2) IBC read with Section 31 IBC.

The NCLT raised objection on the implementation of a section of the resolution plan titled ‘Clause No.e of Chapter IV: Assumption and Limitations of Resolution Plan’.

What does the Clause say?

“..All business permits required by the Corporate Debtor to conduct its business and which have no been granted, canceled, terminated, revoked, suspended or not renewed; having been granted or reinstated, as the case may be, at no additional cost to the Resolution Applicant or Corporate Debtor..”

The NCLT noted that the clause could not be allowed as the issue of business permits was a subject matter of various Competent Authorities which had their own jurisdiction.

It so remarked,

“..we are of the view that approval of the Resolution Plan does not mean automatic waiver or abetment of legal proceedings, if any, which are pending by or against the Company/Corporate Debtor as those are the subject matter of the concerned Competent Authorities having their proper/own jurisdiction to pass any appropriate order as the case may be. The Resolution Applicant(s) on approval of the Plan may approach those Competent Authorities/ Courts/Legal Forums/ Officers- Govt or Semi Govt / State or Central Govt for appropriate relief(s) sought for in Clause No. e of Chapter IV of the Resolution Plan.”

The NCLT thus in view of the above, approved sans 'Clause No. e' by the NCLT.

The order has been passed by a two-member Bench of NCLT, Ahmedabad comprising Member (Judicial) Manorama Kumari and Member (Technical) Chockalingam Thirunavukkarasu on 01-01-2020.

Read Order Here:

 

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