Re: Edelweiss Asset Reconstruction Company Limited v/s Murli Industries Limited
NCLT Mumbai Bench made suggestions to the Government of India, Ministry of Corporate Affairs to frame suitable policy with regard to obtaining the approval of shareholders of Resolution Applicant.
Suggestions to the Government:
- It is observed that in any CIRP, three major entities are involved viz. Corporate Debtor, Financial Creditors/CoC and Resolution Applicant. The Government of India has clarified it vide it’s Circular dated 25.10.2017, that approval of shareholders of the Corporate Debtor is not required when the Corporate Debtor is undergoing CIRP. However, there is no specific provision about not obtaining approval of shareholders of either Financial Creditors and the Resolution Applicant.
- Approval of the shareholders of the Financial Creditors – The approval of shareholders of the Financial Creditors may be made mandatory. However, considering the strict time frame prescribed in IBC approval of Shareholders may be obtained only beyond a certain percentage of haircut is taken. For example, if the haircut is more than 25% in cases where the total outstanding is more than Rs. 500 crores is not an ordinary course of business and shareholders who are the ultimate owners of the Financial Creditors and without their approval would undermine their ultimate rights as Shareholders and corporate democracy.
- If this suggestion is not found merit for any reason the alternative could be at least notice may be sent to the shareholders for their approval/comments within fifteen days from the date of dispatch of the notice that could be done only by e-voting or postal ballot. Otherwise, the shareholders are deemed to have approved the Resolution Plan and that shareholders do not have any negative comments on the proposed write off/haircut and the Banks can proceed with the Resolution Plan as per their commercial wisdom.
- Approval of the shareholders of the Resolution Applicant– The approval of the shareholders in the case of the Resolution Applicant is made since in any merger, demerger, schemes of arrangement under section 230-232 of Companies Act, 2013, irrespective of the amount involved, approval of the shareholders of the transferee Company is a must. By extending the same analogy, approval of shareholders of Resolution Applicant, which is akin to transferee company may be made compulsory.
- If this suggestion is not found merit for any reason, the alternative could be that as proposed above at least, notice may be sent to shareholders of Resolution Applicant for their approval/comments within fifteen days from the date of dispatch of the notice. Otherwise, the shareholders are deemed to have approved the Resolution Plan, and that shareholders do not have any negative comments, and the Resolution Applicant can proceed further with its offer.
- Approval of shareholders of Resolution Applicant, which is a listed Company can be made compulsory when the Resolution Plan consideration is more than Rs. 500 Crores and approval of Shareholders in other cases, i.e. Public Ltd Company/Private Ltd. The company, approval of shareholders may be made compulsory irrespective of the plan amount.
The Hon’ble NCLT Mumbai Bench vide order dated 03.07.2019 stated that the above suggestions are made to ensure the ultimate rights of the shareholders which is supreme over the Board of Directors and also to ensure corporate democracy, transparency, best practices of corporate governance, the participation of owners of the company in the vital Insolvency Process.