NCLT rejects Siva Industries' debt resolution under IBC, orders liquidation

The National Company Law Tribunal (NCLT), Chennai, has rejected the debt resolution proposal of Siva Industries which was earlier cleared by IDBI Bank-led Committee of Creditors (CoC).

Slamming the lenders, the NCLT said it would go by its “judicial wisdom” rather than approving the “commercial wisdom” of the CoC. According to the plan appr­oved by the CoC, lenders were taking a ma­ssive haircut by agreeing to Rs 328 crore as settlement amo­unt, as against claims worth Rs 4,864 crore made by them.

The NCLT said the application made by RCK Vallal, one of the shareholders of the company, is not conforming to the Section 12A of the Insolvency and Bankruptcy Code (IBC). The Section 12A of the IBC gives an opportunity to the promoters to get back their companies if 90 per cent of the lenders agree and the promoters’ clear their dues. 

“This adjudicating autho­rity is required to be vigilant in considering the settlement plan in relation to Section 12A of IBC, 2016, and is only required to permit an unprejudiced settlement plan to succeed. There is always a system of constant checks and balances where there must not be a capricious or arbitrary power given in the hands of CoC to accept or reject a settlement,” the NCLT said. 

Vallal plans to move Nati­onal Company Law Appellate Tribunal (NCLAT) to appeal against the NCLT order.

The Supreme Court had earlier said the commercial wis­dom of the CoC is to be tak­en into account, while deci­ding on the merits of any IBC case. But the NCLT said the “commercial wisdom” of the CoC cannot be called in question by the court only when the said decision has been taken in conformity within the framework of IBC, 2016.

“However, in the present case, instead, without even receiving a single penny from the promoter of the debtor (Siva Industries), the CoC has voted under Section 12A of IBC, 2016, for the withdrawal of the bankruptcy process which not a settlement simpliciter rather than a “business restructuring plan”,” it said. 

The NCLT also said while the withdrawal of the bankruptcy process was cleared by the CoC with 94.3 per cent votes, nowhere in the minutes of meetings shows that the CoC has voted for the settlement plan.

“Thus, now a question arises for consideration before this adjudicating authority that whether based upon a “business restructuring plan” submitted by the promoter of Siva Industries and in an application filed under Section 12A of IBC, 2016, can this adjudicating authority allow for the withdrawal of the bankruptcy process of the company?” it said, adding that it would exercise its “judicial wisdom” and will not get carried away by the “com­m­ercial wisdom” of the CoC.

The court said the promoter of the corporate debtor who is ineligible to submit a resolution plan because of Section 29A of IBC, 2016, is trying to provide a settlement proposal, which is similar to a resolution plan under Section 12A of IBC, 2016. 

“In other words, the promoter of Siva Industries is trying to restructure the loans granted by the lenders under the pretext of a settlement proposal to be given under Section 12A of IBC, 2016,” it said while rejecting the plan. 

Chennai-based entrepreneur C Sivasankaran is neither a director, guarantor, nor or a shareholder in the company for over a decade and the firm is now being run by the extended family members. 

Currently, the UAE-based Masdar and IARC own 40 per cent of Siva Industries debt and the PSU banks have Rs 3,442 crore of exposure. IDBI Bank, which has the highest exposure to the company, will lose a substantial amount of funds as the company goes for liquidation.

Siva Industries was admitted to the bankruptcy court on July 5, 2019. An offer from Royal Partners Investment Fund did not find favours with the banks and was rejected. The resolution professional then filed the liquidation petition before the registry.

But Vallal RCK then filed an application before the NCLT, Chennai, on August 31 last year asking the CoC to consider the one-time settlement offer given by the promoter. In October last year, the NCLT directed the resolution professional to convene a meeting of CoC to consider the OTS.