The NCLT Ahmedabad bench on Tuesday rejected the application made by Essar Steel promoters to close the insolvency process against it by offering to pay off the outstanding dues.

The Ruias, promoters of Essar Steel, offered to pay Rs. 54,839 Crores, as opposed to the resolution plan of Arcelor-Mittal for an amount of Rs.47,507 Crores approved by the Committee of Creditors(CoC).

Ruias filed application under Section 60(5) of the Insolvency and Bankruptcy Code(IBC) , seeking consideration of its settlement plan dated 25.10.2018 by the CoC and termination of insolvency process.

They argued that as majority-shareholders of the company having 70% stake in it, they have the right to redeem the debt under Section 91 of the Transfer of Property Act(TP Act). They also pointed out that their settlement offer was better than the resolution plan approved by CoC.

The two-member bench of the Tribunal however did not accept their submissions. At the outset, it noticed that the Supreme Court had intervened in the matter on October 4, 2018, when it granted opportunity to Arcelor Mitttal and NuMetal to submit resolution plans, despite holding that they stood ineligible under Section 29A IBC, which was inserted by amendment passed while the proceedings were pending.

The SC granted these two companies eight weeks' time to submit resolution plans, by treating it as a special case under Article 142 of Constitution of India. The SC was also categorical in holding that on their failure to submit plans, Essar Steel should go into liquidation.

In this backdrop, the NCLT bench observed that it had to strictly go by the directions of the SC.

"Accepting the present application, if the case is reopened on the pretext of inquiry of settlement plan under the provisions of Section 60(5) of the IB Code, then it would amount to redoing exercise by the RP and the CoC for considering the applicants' plan for settlement other than the Resolution Applicant's plan, which may amount to dilution of the order passed by the Honourable Apex Court", observed the NCLT.

Shareholders' application for withdrawal not maintainable

The Tribunal held that shareholders cannot file application to withdraw the CIRP . Also, the NCLT became functus officio after determining the eligibility of Arcelor Mittal and NuMetal and cannot entertain subsequent application for settlement filed under Section 60(5).

"The shareholders cannot have a legal right to oppose the admission of an Insolvency Petition or to oppose the Corporate Insolvency Resolution Process", observed the NCLT.

When Section 12A specifically deals with withdrawal, application under Section 60(5) seeking withdrawal indirectly cannot be filed. Only the main applicant can file application for withdrawal under Section 12A.

"It is the wisdom of the Legislature which took a conscious decision by making a specific provision for settlement under Section 12A with the voting of 90 per cent members of the Committee of Creditors for allowing such withdrawal by stipulating that such an application to be moved by the main applicant, i.e. Financial/ Operational Creditor and none else", the Tribunal noted in this regard.

Right of redemption under TP Act overridden by IBC

The Tribunal also rejected the argument based on Section 91 TP Act that the shareholders have substantive right to redeem debt. Referring to Section 238 IBC, it was held that IBC had overriding effect over other laws.

"If there is no specific provision for making settlement of the case and closing of CIRP by persons other than the Applicant of Petition or Financial/Operational Creditor, it is not open for other persons to make application under Section 60(5) of the IB Code for making settlement" ,the Tribunal held.

In the case of Brilliant Alloys Pvt Ltd v S Rajagopal the SC had held that insolvency process can be withdrawn even after invitation of resolution plans under Regulation 36A. The SC held that Regulation 30A CIRP Regulations, which bars withdrawal after invitation of expression of interest under Regulation 36A, has to be read subject to Section 12A.

Last week, NCLT Mumbai bench permitted a corporate debtor to withdraw CIRP at the stage when resolution plan was pending approval of the NCLT, after acceptance by CoC. The Mumbai bench took into account the offer of one-time settlement made by the corporate debtor to the financial creditor, which was more economical than the resolution plan.

But in both the above cases, the withdrawal applications were filed by the applicants in the insolvency process, unlike the present case of Essar, where shareholders sought withdrawal.

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(image sourced from here)







