Why NCLT rejected one-time settlement proposal of Siva Industries promoter
The Chennai bench of the National Company Law Tribunal (NCLT) has cancelled the one-time settlement under section 12A of the IBC reached by promoters of Siva Industries with the insolvency applicant IDBI Bank on 12 August 2021.
What were the reasons for the NCLT to dismiss the One-time settlement (OTS) application filed by IDBI Bank? The primary reason cited by the NCLT in its order for dismissing the application under Section 12A was that the settlement plan proposed by the promoter of Siva Industries was not as per the law laid down by the Insolvency and Bankruptcy Code, instead it looks more like a Business Restructuring Plan.
The NCLT observed that the plan proposed by the promoter does not have a Final Offer.
“There is no finality reached between the promoter of the corporate debtor and the CoC as per Clause 2 of the Chapter VIII of the settlement plan; hence based on the ambiguity of terms of settlement we cannot order for withdrawal of the CIRP,” said the NCLT in its order.
The NCLT said in its order that the promoter of Siva Industries, 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.
It said that the promoter of the Corporate Debtor was necessarily trying to restructure the loans granted by the financial creditor under the pretext of a Settlement proposal to be given under Section 12A of IBC, 2016.
The adjudicating authority also observed that there existed an uncertainty in relation to the default, if any, being committed by the promoters of the Corporate Debtor and that the Corporate Debtor cannot be pushed into liquidation in case of a default committed under Section 12A.
The tribunal also reprimanded the CoC while making the observation that the CoC should have voted for the proposal only if they had received the money in full as per the Settlement proposal given by the promoter of the Corporate Debtor, and if such was the case, the apprehension of default on the part of the promoter of the Corporate Debtor would not have arisen, and that the tribunal would not have any hesitation in approving the application under Section 12A.
The NCLT also expressed its apprehension that if Siva Industries default after it was out of CIRP following the approval of one-time settlement, then there would be not option for other creditors but to start a fresh insolvency application, thus defeating the whole purpose of the exercise.
