Clipped from: https://www.thehindubusinessline.com/todays-paper/tp-others/scs-peculiar-judgment-favors-mbl-infra/article65069344.ece
SC’s peculiar judgment favours MBL Infra
BSE listed MBL Infrastructure, which had gone into an insolvency process, recently won a victory of sorts at the Supreme Court, when the apex court okayed the resolution plan of the promoter, Anjanee Kumar Lakhotia, even though he was legally ineligible to be a resolution applicant himself.
The question before the court was whether Lakhotia, whose personal guarantee had been invoked by a creditor (RBL Bank), was eligible to submit a resolution plan under Section 29A(h) of the Insolvency and Bankruptcy Code.
The section mentions “persons not eligible to be resolution applicants” and subsection (h) includes a person who “has executed a guarantee in favour of a creditor… and such guarantee has been invoked by the credit and remains unpaid if full or part”.
In a peculiar judgment, the Supreme Court held that Lakhotia was indeed ineligible; but the court let the resolution process go as proposed – with the resolution plan submitted by Lakhotia – in the interests of employees and shareholders.
The court agreed that Lakhotia was ineligible to be a resolution applicant, in terms of Section 29A(h).
It observed, “What is required to earn a disqualification under the said provision is a mere existence of a personal guarantee that stands invoked by a single creditor.”
It further said, “Admittedly, Respondent No.3 (Lakhotia) has executed personal guarantees which were invoked by three of the financial creditors even prior to the application filed. The rigour of Section 29A(h) of the Code obviously gets attracted.”
Thus, “We hold that the plan submitted by Respondent No.3 ought not to have been entertained.”
Having said that, the court observed, “Though the very resolution plan submitted by the Respondent No. 3, being ineligible is not maintainable, much water has flown (sic) under the bridge.” It took note of “the interests of 23,000 shareholders and thousands of employees” and the fact that Lakhotia has infused Rs. 63 crore into the company.
Further, the court also noted that shareholders’ approval has been secured to raise Rs. 300 crore.
“We remind ourselves of the ultimate object of the Code, which 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,” the court said. “Thus, on the peculiar facts of the present case, we do not wish to disturb the resolution plan leading to the ongoing operation of Respondent No.1 ( MBL Infra).”
For the quarter ended December 2021, MBL Infra reported a net profit of Rs. 24.12 crore, compared with Rs. 2.78 crore for the corresponding period of 2020-21 and Rs. 4.97 crore for the full year 2020-21. On Friday, MBL Infra share closed at Rs. 29.45.
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