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Synopsis

The National Company Law Tribunal has recently refused to approve a base resolution plan while observing that the plan attempted to circumvent SEBI Takeover Regulations.

“From these facts we find that present application is not intended towards resolution of the Corporate Debtor but is an attempt to circumvent the Takeover Regulations of SEBI by bringing M/s WZ Enterprises Private Limited in control in place of existing promoter group led by Mr. Mahesh Gordhandas Garodia,” the order reads.

The division bench of NCLT Mumbai, consisting of Judicial Member Virendra Singh Bisht and Technical Member Prabhat Kumar was hearing an application seeking approval of the base resolution plan under the Pre-Packaged Insolvency Resolution Process.

The Corporate Debtor had a debt of Rs. 4,41,21,594, with Rs. 4,10,40,598 owed to Mahesh Ghodhandas Goradia, a related party and director of the financial creditor, and Rs. 9,00,528 owed to M/s WZ Enterprises Private Limited, an unrelated financial creditor.

On perusal of the financial statements, the bench noted Nil Revenue reported by the corporate applicant for the Financial Years ending on 31st March 2021, 31st March 2022, and 31st March 2023.

The base resolution plan proposed a 100% write-off of promoter shareholding and 12/13 of public shareholding. Additionally, the plan sought an exemption from compliance with SEBI Takeover Regulations.

The tribunal noted that recent payments by M/s WZ Enterprises, coupled with the absence of business activities and the involvement of its director as a joint Resolution Applicant, suggest that the Base Resolution Plan may be an attempt to transfer control to Mr. Ravindra Subhash Salunkhe, potentially circumventing SEBI Takeover Code regulations.

Therefore, while rejecting the base resolution plan the tribunal stated that the legislative intent behind the introduction of PPIRP in the Code was to provide an alternative process for resolution of the stress of corporate MSMEs due to their unique nature of business and simpler corporate structures.

“The legislative intent behind the introduction of PPIRP in the Code was to provide an alternative process for resolution of the stress of corporate MSMEs due to their unique nature of business and simpler corporate structures. PPIRP is built on trust and honors the honest MSME owners by enabling resolution when the company remains with them. Accordingly, we are of considered view that the Application by Corporate Applicant for a purpose other than its resolution cannot be maintained even under Sec. 54 (C) in the garb of Insolvency Resolution Process,” the order states.

Advocates Kunal Kanungo and Tanushree Sogani appeared for Goradia limited.