Apex Court allows resolution plan of MBL Infrastructure despite Section 29A breach

The Supreme Court of India has rejected an appeal by dissenting creditors of MBL Infrastructure to quash an NCLT order approving the resolution plan submitted by its promoter Anjanee Kumar Lakhotiya despite the fact that the latter was ineligible to bid for the company under Section 29A.

The apex court of the country though concurred with the appellant banks that Lakhotiya’s resolution plan should not have been entertained as he was legally barred from bidding for MBL Infrastructure under Section 29A, it, however, allowed the resolution plan keeping in mind the interest of over 23,000 shareholders and thousands of employees of the corporate debtor.

“About Rs. 300 crore has also been approved by the shareholders to be raised by MBL Infrastructure. It is stated that about Rs. 63 crore has been infused into the company to make it functional. There are many on-going projects of public importance undertaken by the company in the nature of construction activities which are at different stages,” the Supreme Court observed.

While disposing off the appeal by Bank of Baroda and other dissenting creditors, the court said that the ultimate object of the Code is to put the corporate debtor back on the rails.

“Incidentally, we also note that no prejudice would be caused to the dissenting creditors as their interests would otherwise be secured by the resolution plan itself, which permits them to get back the liquidation value of their respective credit limits. Thus, on the peculiar facts of the present case, we do not wish to disturb the resolution plan leading to the on-going operation of MBL Infrastructure,” it added.

In their appeal by dissenting creditors had argued that Anjanee Kumar Lakhotiya, who is a promoter of the corporate debtor, was ineligible to submit a resolution plan under Section 29A of the Code, as several personal guarantees executed by him in favour of various creditors of MBL Infrastruture stood invoked, prior to commencement of CIRP.

“There is a clear suppression on the part of Lakhotiya, which was not taken note of by the adjudicating authority on both the occasions. Even the resolution professional failed to bring the said fact before the adjudicating authority. Therefore, the premise on which the adjudicating held Lakhotiya eligible to submit a resolution plan is ex facie false,” it said.

It is to be noted here that when Lakhotiya had submitted its resolution plan, Section 29A had not come into force. While the resolution plan was submitted in June 2017, Section 29A came into effect from 23 November 2017.

After that the CoC held its meeting on 1 December 2017 to deliberate upon the impact of the amendment qua the eligibility of Lakhotiya in submitting a resolution plan in the CIRP proceedings. In view of the lingering doubt expressed, Lakhotiya filed an application with NCLT praying for a declaration that he was not disqualified from submitting a resolution plan under sub-section (c) and (h) of Section 29A of the Code.

The adjudicating authority, through its order on 18 December 2017 held that he was eligible to submit a resolution plan, notwithstanding the fact that he did extend his personal guarantees on behalf of the MBL Infra which were duly invoked by some of the creditors.

Also See: NCLT, NCLAT cannot force parties to settle an issue under IBC