NCLT Mumbai: Base Resolution Plan, An Attempt To Circumvent SEBI Takeover Regulation, Can’t Be Approved Under Section 54C Of IBC
Pragya Kriti
20 Nov 2023 8:00 AM GMT
The National Company Law Tribunal (“NCLAT”), Mumbai Bench, comprising of (Retd.) Justice Virendra Singh G Bisht and Shri Prabhat Kumar (Technical Member) has dismissed an application and held that Base Resolution Plan which is an attempt to circumvent SEBI Takeover Regulations, in respect of the acquisition of a shareholding in a listed entity beyond the specified threshold...
The National Company Law Tribunal (“NCLAT”), Mumbai Bench, comprising of (Retd.) Justice Virendra Singh G Bisht and Shri Prabhat Kumar (Technical Member) has dismissed an application and held that Base Resolution Plan which is an attempt to circumvent SEBI Takeover Regulations, in respect of the acquisition of a shareholding in a listed entity beyond the specified threshold limit, cannot be approved even under Sec. 54C of Insolvency and Bankruptcy Code, 2016 (“IBC”) for initiation of Pre-Packed Insolvency Resolution Process (“PPIRP”).
Background Facts
Garodia Chemicals Limited (“Corporate Debtor”) is a public, listed Company incorporated on 06.01.1993 and is engaged in the manufacturing and dealing of all types of dyes and chemicals, chemical products, and byproducts.
The Corporate Debtor availed loan in several tranches to bear the expenses incurred by the Corporate Debtor for meeting its Statutory obligations and compliances. The Company was not generating any revenue and therefore, was unable to repay the loan including the interest.
The Corporate Debtor made a default of Rs. 4,41 Crores to M/s. WZ Enterprises Private Limited (“Financial Creditor”) and a Company petition under Section 54(C) of the Insolvency and Bankruptcy Code, 2016 (“IBC") for initiation of PPIRP was filed.
The Financial Creditor holds a 100% voting share and approved the decision of the directors to file the petition under Section 54A(3) of IBC and the Corporate Debtor submitted the Base Resolution Plan.
NCLAT Verdict
NCLT referred to the Financial Statements of the Corporate Debtor and stated that the Corporate Debtor reported Nil Revenue in the Financial Years ending on 31st March 2021, 31st March 2022, and 31st March 2023.
The NCLT further observed that the Base Resolution Plan is jointly submitted by the Corporate Debtor and Mr. Ravindra Subhash Salunkhe director of Financial Creditor.
NCLT pointed out that the Base Resolution Plan proposes to eliminate 100% of promoter shareholding and 12/13 of public shareholding. The Plan also proposes to waive the compliances mandated by Section 61, 66 of the Companies Act, 2013, Regulation 37 of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, Regulation 31A of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 and SEBI (SAST) Regulations, and any other applicable laws and regulations to implement the plan. Therefore, the Plan is the exemption from compliance with SEBI Takeover Regulations.
The fact of the payments towards listing fees and NSDL charges made by M/s WZ Enterprises Private Limited immediately prior to filing of this Application, no business carried out by the Corporate Debtor in the last 3 years as discernible form NIL revenue reported in the Audited Financial Statements and the director of such enterprise being one of the joint Resolution Applicants to infuse Resolution money under the Base Resolution Plan, we feel that the Base Resolution Plan has been devised as a mechanism to transfer control to Mr Ravindra Subhash Salunkhe of a listed entity which would have otherwise attracted the rigor of the SEBI Takeover Code in respect of acquisition of shareholding in a listed entity beyond the specified threshold limit.
NCLT dismissed the application and concluded, that the application was not intended towards the resolution of the Corporate Debtor but was an attempt to circumvent the Takeover Regulations of SEBI.
Case Title: Garodia Chemicals Limited
Case No.: CP(IBPP) NO. 02 OF 2023
Counsel For the Petitioner: Mr. Kunal Kanungo a/w Ms. Tanushree Sogani, Advocates
