NCLT on Sale of shares held by Corporate Debtor during the resolution process

National Company Law Tribunal (NCLT): – Sale of shares held by Corporate Debtor during resolution process – In the matter of Company Application No. MA/108(CHE)/2021 in Petition No. IBA/73/2020, order dated 26.Oct.2021

Brief Introduction of the Application filed:

This application was filed by one of the resolution applicants in the resolution process of Corporate Debtor. Prestline Malwa Logistics Park Pvt. Ltd., is the applicant / petitioner herein. Mr.S.Venkatasubrmanian and Another, the respondent herein, is the Learned Counsel for the Resolution Professional handling the corporate insolvency process. This application has been made under Section 60(5) of IBC, 2016 which states that NCLT has complete jurisdiction to dispose or entertain a. any proceeding or application against corporate debtor, b. any claims against or made by corporate debtor including its subsidiaries in India and c. any question of law or priorities or facts which may arise during the course of the resolution process.

A resolution applicant is a person who singly or jointly submits a resolution plan to the resolution professional (RP) pursuant to an invitation made under Section 25 of the IBC. Invitations are made by RP to prospective resolution persons who fulfill the conditions laid down by committee of creditors and who submit a resolution plan to the RP with reference to the Corporate Debtor.

In this case, Prestline Malwa Logistics Park Pvt. Ltd., who is the petitioner and prospective resolution person, was provided with the information memorandum which is a sale memorandum of the Corporate Debtor and basis this memorandum, a resolution plan had to be arrived at by the prospective resolution persons on or before 29.Oct.2021.

In the interim, the RP wanted to sell certain shares held by the Corporate Debtor which were reflecting in the Information Memorandum submitted by the RP to the prospective resolution persons. The RP floated for the sale of Sical Infra Assets Ltd and Patchems Logistics Private Limited which were held by the Corporate Debtor and the bidders were required to submit the bids or EMD’s on or before 26.Oct.2021.

Contention of the Petitioner:

The Petitioner herein is of the view that if the shares held by the Corporate Debtor were sold, the third party interest would be created which as per the petitioner would create further difficulties in selling the business of the Corporate Debtor as a going concern. The RP was questioned on the grounds that if the shares held by the Corporate Debtor were sold at this stage of the resolution process, that the value of business of the Corporate Debtor would reduce.

Further, the bid for selling the shares was to be received by 26.Oct.2021 and the Expression of Interest (EOI) for the resolution plan which was sought for was to be submitted on or before 29.Oct.2021.

The contention of the petitioner was that even though as per Regulation 29 of the IBBI (insolvency Resolution Process for Corporate Persons) Regulations, 2016, the RP had the right to sell the shares held by the Corporate Debtor during the revival process to other bidders but since the information memorandum was already submitted to all the Resolution Applicants including the Petitioner herein where the shares held were reflecting, no steps were taken by RP to amend the information memorandum accordingly. It was also agreed by the RP that the information memorandum was not modified.

The contention of the Respondent:

The respondent who is the Learned Counsel representing the RP clarified that 25 EOI’s were received, out of which 24 were Prospective Resolution Applicants and it is only the petitioner herein who has approached the Tribunal. The contention of the respondent was that as per Regulation 29 of the IBBI (insolvency Resolution Process for Corporate Persons) Regulations, 2016, the RP does have the right to sell the shares held by the Corporate Debtor during the revival process and requested the Tribunal to extend the last date for submitting the bids for the sale of shares or EMD to be extended up to 6PM on 01.Nov.2021.

The respondent further contended that this will allow the petitioner herein sufficient time to consider on participating on the resolution process of Corporate Debtor and also obtain sufficient commercial knowledge and wisdom.

Analysis and the final judgment:

The NCLT took note of the request made by the RP to align the facts given in the information memorandum and submit the EOI basis the information memorandum filed by RP which reflected the two company shares held by the Corporate Debtor. Further by granting extension of time till 01.Nov.2021, the petitioner’s contention will be fulfilled and no amendment to the information memorandum will be required and also the petitioner will have sufficient time to participate on the resolution process by obtaining adequate commercial knowledge and wisdom. Hence the EMD for sale of share held by Corporate Debtor was extended till 01.Nov.2021 till 6 PM and the application was closed with no cost.