Section 29A(C) of IBC disqualifies persons Managing and Controlling Corporate Debtor who Failed to Clear Debts: NCLAT [Read Order]

The New Delhi Bench of the National Company Law Appellate Tribunal ( NCLAT ) ruled that Section 29A(C) of the Insolvency and Bankruptcy Code, 2016 ( IBC ) disqualifies persons managing and controlling corporate debtor who failed to clear debts.

The Appeal has been filed by the Appellant challenging the order passed by NCLT, New Delhi Special bench, by which order, CA filed by the Appellant challenging the decision of Resolution Professional ( “RP” ) and Committee of Creditors ( “CoC” ) to declare the Appellant as disqualified under Section 29A of IBC, has been rejected. The Appellant aggrieved by the order has come up in the Appeal.

The counsel for the appellant submitted that the Appellant being not in management or control at the time when the Corporate Debtor’s account was declared as NPA, no disqualification can attach against the Appellant under Section 29A (c) of the IBC. The RIPL, subsidiary of the Appellant had only less than 9% shareholding on the date when Corporate Debtor was declared NPA and it cannot be held that the Appellant has any control over the management of the Corporate Debtor, through its subsidiary RIPL.

The Counsel appearing for the RP, refuting the submission of the Appellant contended that the Appellant has invested Rs.236.11 Crores and held 21.55% equity shares through its 100% subsidiary RIPL in the Corporate Debtor. The Appellant was in position to invest additional Rs.730 Crores further within the approved limit of Rs.966 Crores, which was already in place in terms of MoU dated 15.03.2013. The MoU dated 23/28.03.2016 has to be read as a whole, which clearly indicate that the Appellant had been given both de jure and de facto control of the Corporate Debtor.

A Two-Member Bench comprising Justice Ashok Bhushan, Chairperson and Barun Mitra, Member ( Technical ) observed that “The Appellant may be right in his submission that he was not Promoter of the Corporate Debtor since beginning and by MoU, only shareholding was taken through RIPL. However, even if the Appellant was not the Promoter of the Corporate Debtor since inception, after the execution of the MoU dated 23/28.03.2016, the Appellant was given control and management of the Corporate Debtor.”

“The reason for handing over the management and control to the Appellant was proposed investment of 51% equity share and to implement the Project. Rs.236 Crores having already been invested by the Appellant, the control and management was given, so that the Corporate Debtor may run the Project. There was object in giving the control and management, which is clearly reflected from clauses of the Agreement as noticed above” the Tribunal added.

To Read the full text of the Order CLICK HERE

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