The Chennai Bench of the National Company Law Tribunal (NCLT) has called for procedures for regulating the affairs of the committee of creditors (CoC) under the Insolvency and Bankruptcy Code 2016 (IBC).
The direction came in the case related to Ashok Magnetics, which was brought under insolvency proceedings last year. The company owed almost ₹13 crore to the Central Bank of India and about ₹27.5 crore to the State Bank of India, according to documents.
Procedure for CoC
NCLT directed the head offices of the members of committee of creditors in the case to work out a “standard operating procedure” for its members to follow for determining the suitability and viability of resolution plans, in consultation with the Banking Division of the Union Ministry of Finance.
Earlier, the Chennai Bench of the NCLT had allowed the promoters of Ashok Magnetics to bid for the company in a resolution process under the IBC. However, the CoC rejected the bid, on various grounds, against which the promoter moved the NCLT.
NCLT was unhappy over the stand taken by a member of the CoC. The member had stated that the resolution plan was ineligible under IBC, despite the NCLT ruling that allowed the bid. This amounted to non-compliance with the order of the authority and utter disregard for court orders and the law, it said.
It also said some other grounds cited by the CoCs were not sufficient and were flimsy.
“…. it is clear that the members of the CoCs have rejected the resolution plan mechanically without application of mind, as if, they have not been interested to consider the same on merits, as there is no shred of evidence that the suitability and viability of the resolution plan has been considered on merits,” the NCLT observed in its order.
“In these circumstances, it will be an exercise in futility to remand the matter to the resolution professional and the CoCs for reconsideration of the resolution plan, as they have no intention to consider any resolution plan, inspite of the direction of this authority,” it noted.
Since the maximum period of 270 days under the insolvency process was over, NCLT ordered the liquidation of Ashok Magnetics.
The NCLT appointed resolution professional V. Nagarajan as company liquidator. It also said that all the powers of the board directors, key managerial personnel and the partners of the company shall cease to have effect and shall be vested with the liquidator.
