The first insolvency resolution under the Insolvency and Bankruptcy Code (IBC) is set to be challenged at the appellate tribunal because it has been alleged that the plan involves a related-party transaction.
Edelweiss Asset Reconstruction Co. Ltd is readying to approach the National Company Law Appellate Tribunal (NCLAT) in the case of Synergies Dooray Automotive Ltd, two people with direct knowledge of the matter said, requesting anonymity.
Synergies Dooray’s plea for insolvency was admitted on 23 January. The resolution plan was submitted to NCLT on 21 July, and the tribunal approved the plan on 2 August.
The resolution involves merging Synergies Dooray with Synergies Castings Ltd, a creditor and so-called related party.
It also involves financial restructuring of the dues of financial and operational creditors, payment of dues to the government and an infusion of capital (including equity) from the promoters.
However, Edelweiss ARC has alleged that only the Synergies Castings plan was considered, said one of the people cited earlier.
Edelweiss ARC had earlier objected in NCLT that Millennium Finance Ltd was wrongly included in the committee of creditors, and that it was a related party.
The committee of creditors is the one which takes a decision on the resolution plan submitted by the insolvency resolution professional.
However, the company law tribunal dismissed the objection and said the interim resolution professional (IRP), under the provisions of the bankruptcy code, does not have the power to address disputes among creditors.
A spokesperson for Edelweiss declined to comment.
“The ARC is also alleging that the resolution plan is based on a sham transaction and the debt was transferred to another financial creditor at the last moment to allow a related party, a majority voting power in the committee of creditors,” said the second of the two people cited earlier.
Mamta Binani, the IRP in this case, declined to comment.
Sekhar Movva, president at Synergies Dooray, said that NCLAT will see merit in the NCLT order.
“Whereas we respect any aggrieved financial creditor’s right to appeal per their legal rights, we are confident that the NCLAT will see merit in the NCLT order; which in essence is in line with previous judgments (of BIFR—Board for Industrial and Financial Reconstruction), and also consistent with majority creditors intent to find a positive resolution plan that takes care of all stakeholders interests; and not merely one or two minority creditors,” said Movva.
The resolution plan is to be funded against receivables from other corporate debtors and through operations.
The payments to the creditors and the government will be staggered over the next three years at a deep haircut, where only the principal amount will be paid.
Source: Mint