The National Company Law Tribunal (NCLT), Chennai, has rejected the debt
settlement proposal of Siva Industries and Holdings Ltd that was earlier approved by
its lenders. The court also ordered Siva Industries’ liquidation in an order on August
13,2021.
The NCLT rejected the proposal terming it a “business restructuring plan” rather than
a settlement envisaged under section 12 A of the Insolvency and Bankruptcy Code
(IBC). It also said that the terms of the settlement were ambiguous.
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Section 12 A of the IBC allows insolvency cases to be withdrawn with the approval of
the members of the committee of creditors (CoC) with 90 percent voting share. In
Siva Industries’ case, creditors led by IDBI Bank had voted in favour of the
settlement in the first week of April. The company had offered a one-time settlement
of Rs 500 crore, a tenth of the Rs 5,000 crore it owed to banks.
The Supreme Court had in similar cases said that the commercial wisdom of the
CoC should be taken into account while deciding on the merits of any IBC case. But
in this instance, the NCLT has questioned the ambiguity of the settlement proposal.
It said: “There is no final offer made by the promoter of the corporate debtor, and
also the acceptance made by the committee of creditors (CoC) in this regard.”
“Based on the ambiguity of terms of settlement, we cannot order for withdrawal of
CIRP (corporate insolvency resolution process),” the tribunal said.
The lenders had argued before the court that if the company was liquidated or in a
resolution plan involving a third party, all operational creditors, including tax
authorities, would be wiped out. Hence, they approved the 12A petition by the
promoters.
However, the NCLT was of the view that the CoC should have voted for the proposal
only if they had received the money in full as per the settlement proposal given by
the promoter. If that were done, apprehensions of a default by the promoter would
not have arisen and that would have made the tribunal’s job easier, it said.
The one-time settlement offered Rs 5 crore as an upfront payment to the banks. As
per its terms, the settlement amount will be paid from the funds/debt to be raised by
the promoter either on its own or out of the proceeds from either sale of assets,
raising debt or external capital raise using the assets offered as security to lenders.
At the same time, lenders also agreed to withdraw all pending legal proceedings
against Siva group companies as part of the resolution plan.
The NCLT also questioned the settlement proposal on the grounds of it being
submitted by a promoter, who is ineligible to submit such plans under Section 29A of
IBC. Under this statute, an insolvent, a wilful defaulter or a person who was a
promoter or was in the management of the corporate debtor, among other conditions
would not be allowed to bid for the insolvent company concerned.
RCK Vallal, who had filed the application before NCLT last August asking the CoC to
consider the one-time settlement offer, now plans to move the National Company
Law Appellate Tribunal to appeal against the NCLT order.
