The Principal Bench of the National Company Law Appellate Tribunal ( NCLAT ) has terminated the Insolvency Proceedings on acceptance of the settlement proposal by promoters. The Tribunal observed that the decision of the Committee of Creditors ( CoC ) is arbitrary in not approving the 12A Proposal which Proposal offered to pay the entire debt of Financial Creditors as well as all other creditors
The appeal has been filed by the Suspended Director of the Corporate Debtor – Asian Hotels ( West ) Ltd. and shareholders of the Corporate Debtor challenging the order passed by the Adjudicating Authority ( National Company Law Tribunal ) admitting the Section 7 application filed by the Financial Creditor as well as orders passed in two Interlocutory Applications.
The Corporate Debtor – Asian Hotel ( West ) Ltd. is a company running hotel Hyatt Regency, Mumbai. The Corporate Debtor availed financial assistance from Yes Bank on 21.04.2016, Term Loan amounting to Rs.180 Crores and further Term Loans in different Tranches totalling to Rs.200 Crores. An overdraft facility of Rs.27 Crores was also availed by the Corporate Debtor.
The Corporate Debtor served its all financial obligations to Yes Bank till 31.03.2021. Due to pandemic COVID-19 lockdown was enforced w.e.f. 25.03.2020 and during the period of COVID hotel business was worse affected. During the COVID, the Government of India to support the business enterprises severely affected by COVID-19 introduced Emergency Credit Lines Guarantee Scheme ( ECLGS ). Under the ECLGS, eligible borrowers could avail of additional credit lines in the form of additional working capital/term loan facility based on 100% guarantee coverage sanctioned under the ECLGS.
The Corporate Debtor applied for the additional facility of Rs.40 Crore under ECLGS 2.0 on 24.11.2020. The Yes Bank issued sanction letter which was accepted by the Corporate Debtor, however, the Bank did not release the amount sanctioned under ECLGS on the ground that certain conditions which are to be fulfilled by the Corporate Debtor have not been fulfilled.
The default was committed by the Corporate Debtor in paying the instalments of April 2021. The bank issues a Loan Recall Notice recalling the entire loan amount along with interest. On the same date, notice under Section 13(2) was issued by Yes Bank. The Yes Bank also took possession of assets on 21.08.2021 under the SARFAESI Act, 2002.
It was pleaded that the Applicant has unlawfully refused to release the amount of Rs.38.5 Crore against the ECLGS and had the amount been released, the Company would not have been a defaulter since on the date of Loan Recall Notice i.e. 30.07.2021 the total default was less than Rs.12 Crore. It was pleaded that the application has been filed as sheer abuse of the process of law.
The mere fact that they have submitted a Resolution Plan does not give them any right to get their plan approved, especially when the CoC was interdicted from not considering a plan by an interim order passed in these Appeals.
It was found that in the resolution which was passed by the CoC, one of the Resolution Applicants was allowed to withdraw its EMD. CoC granted its consent to approve the request of the consortium to withdraw from the CIRP process and to refund the earnest money.
A two-member bench comprising Justice Ashok Bhushan, Chairperson and Barun Mitra, Member ( Technical ) observed that the decision of the CoC is arbitrary in not approving the 12A Proposal which the Proposal offered to pay the entire debt of Financial Creditors as well as all other creditors. From the minutes of the 14th and 15th CoC, it was evident that the CoC has expressed its willingness to accept the proposal if the entire amount is deposited, however, the opportunity was not granted by the CoC and within three days from 10.10.2023 meeting i.e. on 13.10.2023 they dissented the proposal although they initially granted six weeks to deposit the amount.
The Tribunal held that the Proposal submitted by the Appellant on 11.08.2023 as revised on 04.10.2023 acceptable to liquidate the debt of the Corporate Debtor close CIRP and make payment of debts of all Creditors. The Proposal under 12A submitted by the Appellant dated 11.08.2023 as revised on 04.10.2023 is accepted. The CIRP is closed and set aside the order admitting the Section 7 application.
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