Lenders plan to appeal against liquidation of Siva Industries
The NCLT had last week slammed the lenders and set aside the ‘commercial wisdom’ of the COC
Shareholders of Siva Industries and its Indian lenders are planning to appeal against the NCLT’S Chennai Bench order, which has rejected the withdrawal of bankruptcy proceedings against the firm, while setting aside the “commercial wisdom” of the lenders and exercising its “judicial wisdom” instead.
The NCLT had said the application by RCK Vallal, one of the shareholders of the company, is not conforming to Section 12A of the Insolvency and Bankruptcy Code (IBC) and sent the company for liquidation. According to the plan accepted by the COC, Indian lenders, led by IDBI Bank, are going home with recovery of only 6 per cent of their dues.
The lenders plan to move the NCLAT as NCLT slammed the banks repeatedly for not voting on the one-time settlement proposal by promoters and clearing the proposal which, according to the NCLT, does not conform to the IBC Code. At the same time, Vallal is likely to rely on previous NCLAT judgments where similar petitions like his were accepted by the tribunal and an NCLT order was stayed.
Legal experts said in the previous judgments, the Supreme Court had held that the commercial wisdom of the COC in approving a resolution plan under the IBC should be based on the principle that commercial matters should not become subject to judicial interference. “Whether there should be a framework for such commercial decision making by the creditors is a matter of another discussion. But the case of Siva Industries is not in relation to an approval of a resolution plan under IBC but a withdrawal from the insolvency process based on a proposed settlement,” Ajay Shaw, partner, DSK Legal, said.
As far as withdrawal from the insolvency process is concerned, Section 12A of the IBC, read with Regulation 30A of the CIRP Regulations, provides that where an application for withdrawal is made, the lenders have to state reasons justifying withdrawal.
“However, in the Siva Industries issue, the NCLT has questioned the rationale for the withdrawal from the insolvency process as it was of the view that it was more of a business restructuring plan rather than a settlement proposal as the payout to the creditors would happen after the approval within a six months’ timeframe,” Shaw said.
Further, the settlement terms having provisions that enabled further negotiation on the payout to creditors did not rightly augur well with the NCLT, as there was no finality to the settlement. Another issue that bothered the NCLT was once the withdrawal order was passed, the prayer to enable the creditors to push the corporate debtor into liquidation in case the settlement was not implemented could not be granted as it transcends beyond the scope of IBC, Shaw said.
Uae-based Masdar and IARC own 40 per cent of Siva Industries’ ~4,864-crore debt and the PSU banks have ~3,442 crore exposure. The voting on the proposal was completed only after banks’ boards cleared the proposal to accept ~328 crore as a one-time settlement.