If the 'Resolution Plan' is not considered by the CoC in accordance with law,Can Adjudicating Authority remand the matter to CoC for RECONSIDERATION?

The answer is ‘YES’ as held in Company Appeal (AT) (Insolvency) No. 792 and 793 of 2018 between Ajay Agarwal & Anr. Versus Ashok Magnetic Ltd. & Ors.

In the matter of Ajay Agarwal & Anr. Vs. Ashok Magnetic Pvt. Ltd. & Ors. CA (AT) (Insolvency) No. 792 & 793-2018

The Appellants in aforesaid matters made two submission;

• First being that M/s Ashok Magnetics Limited (Corporate Debtor) is a small scale Industry comes within the meaning of ‘Micro, Small and Medium Enterprises/ MSME’, therefore, its promoters (appellant) cannot be held to be ineligible under Section 29A, for filing the ‘Resolution Plan’ in view of Section 240A of ‘I&B Code’.
• Secondly it was stated that CoC has not considered the ‘Resolution Plan’ submitted by the Appellants on the grounds that plan submitted by promoters of Corporate debtor cannot be considered.

Findings of Hon’ble Appellate Tribunal (AT) in reflection of above questions and impugned order;

• Hon’ble AT refused to provide any clarity of the first issue whether Board of Directors/ Promoters of Corporate Debtor or any of its members are ineligible in terms of section 29A. Although Hon’ble NCLT Chennai Bench vide impugned order dated 9th November of 2018 in paragraph 11 stated its strong displeasure over one of the grounds taken by CoC in rejecting the resolution plan being that promoter/ directors of corporate debtor are barred under Section 29A. Hon’ble NCLT also observed and stated in impugned order that CoC was not interested in considering the resolution plan on merits and in such circumstances it will be an exercise in futility to remand the matter to the RP or CoC for reconsideration of the Resolution Plan.
• But Hon’ble AT disagreed with the observation of Hon’ble NCLT over the observation that even if the case has not been considered on merit, remand will be futile and stated in para 10 of the judgement dated 22nd February 2019 in the aforesaid appeal “If a case is not considered by the ‘Committee of Creditors’ in accordance with law, it is the duty of the Adjudicating Authority to remand the matter to the ‘Committee of Creditors’ for reconsideration.”
• In the aforesaid matter Hon’ble AT found that CoC duly considered the matter and voted against the ‘Resolution Plan’, thus it was not inclined to remand the matter to the CoC for reconsideration.

Findings of Hon’ble Appellate Tribunal (AT) in relation to Section 230 of the Companies Act, 2013;

• Contention was raised by the appellant that the liquidator should ensure that company should remain the going concern and take steps in terms of Section 230 of the Companies Act, 2013, further submitting that the Compromise, Arrangement and Amalgamations can be proposed between the company and its members or any class of them in terms of Section 230 (1) (b).
• To the raised contention, Hon’ble AT directed appellants and the liquidator to act in accordance with law and observations of the Hon’ble AT in “S.C. Sekaran v. Amit Gupta & Ors.” It was further stated that members of corporate debtor or the creditors are free to contact the liquidator for Compromise or Arrangements in terms of Section 230 and if it is found that the scheme is viable, feasible and maximize the assets of the corporate debtor and balance the creditors, the liquidator will move application under Section 230 before the National Company Law Tribunal for appropriate order and directions. On failure, the liquidator will ensure to sell the 'Corporate Debtor' as a going concern in its totality, taking into consideration the interest of the employees of the 'Corporate Debtor'.  

Disclaimer: Information contained above is for general information purposes only and no liability express or implied is assumed by the Author or the firm he is associated with. The Author, Sagar Bansal is an Associate lawyer with Veda Legal, Advocates & Solicitors and views expressed are personal.