Speedy Liquidation Should Be Preferred Over Unproductive, Lengthy Resolution Proceedings, Says NCLAT

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The National Company Law Appeals Tribunal (NCLAT) has upheld a winding-up order for debt-ridden Siva Industries and Holdings Ltd, noting that “a speedy winding-up is preferable to a fruitless and never-ending resolution process. “.

A two-member bench of the NCLAT, while denying a petition filed by Vallal RCK, said that if the National Company Law Tribunal (NCLT) does not receive a resolution plan after the expiry of the maximum 330-day period, then the liquidation of the corporate debtor must follow.

“If the Corporate Insolvency Resolution Period (CIRP) deadline has been extended but the resolution plan has not been accepted by NCLT, the company may be ordered liquidated under the Section 33 of the I&B Code. A speedy liquidation is preferable to an unsuccessful and endless liquidation. Resolution procedure,” the NCLAT said.

The Chennai bench of the NCLT had on August 12, 2021 rejected a settlement plan proposed by the promoters under Section 12A of the Insolvency and Bankruptcy Code (IBC) and ordered the commencement of bankruptcy proceedings. liquidation against Siva Industries.

This order was challenged by Vallal RCK, father of the group’s founder Siva C Sivasankaran.

Under Section 12A of the IBC, the NCLT may authorize the withdrawal of pending insolvency proceedings against a business under certain conditions. This application is filed by the company with 90% of the votes of the Committee of Creditors (CoC).

In his petition, Vallal argued that his settlement proposal initially received 70.63% of the vote.

However, International Assets Reconstruction Co Ltd, holding 23.60% of the voting shares, subsequently decided to change its vote to approve the promoter’s proposed settlement.

After that, another CoC meeting was held, which on April 6, 2021 accepted the settlement offer of Rs 333.21 crore at a discount of 93.5%.

Following this, the company’s resolution professional filed a Section 12A application to withdraw the insolvency proceedings against Siva Industries.

However, by passing an order on August 12, 2021, the NCLT not only rejected the proposal, but also ordered to initiate liquidation proceedings against the company.

“There is no finality entered into between the debtor company promoter and the CoC pursuant to clause … of the settlement proposal; therefore, based on the ambiguity of the settlement terms, we cannot order the CIRP to be withdrawn,” NCLT said.

This was challenged by Vallal in the NCLAT insolvency appeals court, which last week rejected his plea and affirmed the order to open insolvency proceedings.

Insolvency proceedings against Siva Industries and Holdings Ltd were launched in July 2019 after defaulting on payments of almost Rs 5,000 crore.

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