NCLAT Delhi: Ex-Promoter, Who Resigned Before CIRP Commencement, Is Eligible To Submit Resolution Plan

The National Company Law Appellate Tribunal ('NCLAT') New Delhi Bench, comprising Justice Ashok Bhushan (Chairperson), Mr. Barun Mitra (Technical Member), and Mr. Arun Baroka (Technical Member) held that an Ex-Promoter/Director who resigned from Corporate Debtor before initiation of Corporate Insolvency Resolution Process ('CIRP') under Section 10 of Insolvency and Bankruptcy Code, 2016 ('IBC') is eligible to submit a Resolution Plan under Section 29A of IBC. Background Facts: On 19.05.2021, NCLT Mumbai admitted the CIRP application by Blue Frog Media Pvt. Ltd. (Corporate Debtor) under Section 10 of IBC. Mr. Mahesh Mathai ('Respondent 2') Ex-Director of the Corporate Debtor submitted a Resolution Plan. On 08.11.2021, the Resolution Plan was approved by the Committee of Creditors (CoC) on 08.11.2021 by 91.86% vote share. The present appeal has been filed against NCLT Mumbai Order dated 18.08.2023 rejecting the application for approval of the Resolution Plan by Respondent 2 citing he is not eligible to submit a Resolution Plan under Section 29A of IBC. NCLAT Verdict: The NCLAT New Delhi allowed the appeal and held that an Ex-Promoter/Director who resigned from Corporate Debtor before initiation of CIRP u/s 10 of IBC is eligible to submit a Resolution Plan under Section 29A of IBC. NCLAT placed reference to Section 29A of IBC which read as follows: 29A. Person not eligible to be resolution applicant. --A person shall not be eligible to submit a resolution plan, if such person, or any other person acting jointly or in concert with such person-- (a) is an undischarged insolvent; (b) is a wilful defaulter in accordance with the guidelines of the Reserve Bank of India issued under the Banking Regulation Act, 1949; (c) at the time of submission of the resolution plan has an account,] or an account of a corporate debtor under the management or control of such person or of whom such person is a promoter, classified as non-performing asset in accordance with the guidelines of the Reserve Bank of India issued under the Banking Regulation Act, 1949 (10 1949) [or the guidelines of a financial sector regulator issued under any other law for the time being in force,] and at least a period of one year has lapsed from the date of such classification till the date of commencement of the corporate insolvency resolution process of the corporate debtor: Provided that the person shall be eligible to submit a resolution plan if such person makes payment of all overdue amounts with interest thereon and charges relating to non-performing asset accounts before submission of resolution plan; Provided further that nothing in this clause shall apply to a resolution applicant where such applicant is a financial entity and is not a related party to the corporate debtor. Explanation. I.--For the purposes of this proviso, the expression "related party" shall not include a financial entity, regulated by a financial sector regulator, if it is a financial creditor of the corporate debtor and is a related party of the corporate debtor solely on account of conversion or substitution of debt into equity shares or instruments convertible into equity shares 12[or completion of such transactions as may be prescribed,] prior to the insolvency commencement date. Explanation. II.--For the purposes of this clause, where a resolution applicant has an account, or an account of a corporate debtor under the management or control of such person or of whom such person is a promoter, classified as non-performing asset and such account was acquired pursuant to a prior resolution plan approved under this Code, then, the provisions of this clause shall not apply to such resolution applicant for a period of three years from the date of approval of such resolution plan by the Adjudicating Authority under this Code;] (d) has been convicted for any offence punishable with imprisonment-- (i) for two years or more under any Act specified under the Twelfth Schedule; or (ii) for seven years or more under any other law for the time being in force: Provided that this clause shall not apply to a person after the expiry of a period of two years from the date of his release from imprisonment: Provided further that this clause shall not apply in relation to a connected person referred to in clause (iii) of Explanation I; (e) is disqualified to act as a director under the Companies Act, 2013; Provided that this clause shall not apply in relation to a connected person referred to in clause (iii) of Explanation I; (f) is prohibited by the Securities and Exchange Board of India from trading in securities or accessing the securities markets; (g) has been a promoter or in the management or control of a corporate debtor in which a preferential transaction, undervalued transaction, extortionate credit transaction or fraudulent transaction has taken place and ...

NCLAT Delhi: Ex-Promoter, Who Resigned Before CIRP Commencement, Is Eligible To Submit Resolution Plan

Sachika Vij

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