The order of the NCLT bench was flawed and does not take into account the provisions and sub-sections of the law, which state clearly that Section 29A will be applicable in cases where a resolution plan has not been stamped and approved, a senior government official said.
Bankers, too, did not agree with NCLT’s interpretation.
“NCLT may have ruled the way it did, but banks would not allow any backdoor entry by any promoters,” said a bank CEO who did not want to be identified. “The government has made it clear that it doesn’t want any defaulting promoters back until they clear their dues.”
The order passed by judicial member MK Shrawat could have far-reaching consequences if it is taken as a precedent because it can give an opportunity to promoters of defaulting companies such as Essar Steel, Bhushan Power, Lanco, ABG Shipping and Alok Industries to bid for their businesses.
The government promulgated the ordinance amending the Insolvency and Bankruptcy Code on November 23. The ordinance introduced Section 29A, which disqualifies defaulting promoters and connected entities from bidding for their own companies.
“The judgment is totally off the mark… So much water has flown over the disqualification of companies… The law is amply clear,” the senior official told ET , citing a section of the law.
According to section 30 (4) of the Act, “the committee of creditors shall not approve a resolution plan, submitted before the commencement of the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2017, where the resolution applicant is ineligible under section 29A and may require the resolution professional to invite a fresh resolution plan where no other resolution plan is available with it.”
“The ordinance amending 29A was clear that the defaulter has to clear the dues within 30 days and there’s no question of entertaining a promoter without doing so. Also, any bidder could challenge in the NCLT again if a promoter submits a bid without clearing the dues,” the bank CEO said.
The law states that in case a resolution applicant is ineligible under clause c of 29A, the committee of creditors should allow the applicant 30 days to make payment of the overdue amount to address the ineligibility.
The Mumbai bench order was passed on June 4 in the matter of Wig Associates, which triggered insolvency proceedings against itself in August 2017. The order approved a plan submitted by Wig, who is otherwise ineligible under Section 29A of the IBC Amendment Act.
“Insolvency resolution processes are continuous proceedings and therefore cannot be halted, altered or changed once commenced till its finalisation, much like it is unfair to alter the rules of a game in a playground once it has started,” Shrawat said in his order.