The NCLT said Section 29A of the Insolvency and Bankruptcy Code (IBC) restricts such persons from submitting a resolution plan as it could have an adverse effect on the entire CIRP
The National Company Law Appellate Tribunal (NCLAT) on Thursday said former promoters and directors of a company going through insolvency process are not barred from submitting bids until they are ineligible under clauses of Section 29A of the insolvency law.
The mere fact that someone was a promoter and director of a company going through the Corporate Insolvency Resolution Process (CIRP), does not make that person ineligible to submit a resolution plan, said the appellate tribunal while setting aside an order of Mumbai bench of the National Company Law Tribunal (NCLT).
The NCLT said Section 29A of the Insolvency and Bankruptcy Code (IBC) restricts such persons from submitting a resolution plan as it could have an adverse effect on the entire CIRP.
The tribunal made the observations while denying the resolution plan of Mahesh Mathai for Blue Frog Media, in which he was a director.
Mathai's proposal was approved by the Committee of Creditors (CoC) with a 91.86 per cent vote share and the resolution professional moved the plea for approval before NCLT, which rejected it. This was challenged by the resolution professional before NCLAT.
Setting aside the order, NCLAT said, "Section 29A does not make per se promoters and directors ineligible to submit a plan unless they are ineligible under clauses (a) to (g)" of the IBC.
Mathai had resigned from the company before submission of the resolution plan, the appellate tribunal said.
"The present is not a case where any of the clauses of Section 29A are being pressed for ineligibility of Respondent No. 2. Ineligibility is being held only on the ground that Respondent No. 2 (Mathai) was a promoter of the corporate debtor till 2018 when he resigned," it said.
NCLAT further said "view taken by the adjudicating authority (NCLT) is not as per the true and correct interpretation of Section 29A" and set aside the order passed on August 18, 2023.
The mere fact that Mathai was the promoter and director shall not make him ineligible to submit a resolution plan, it said.
Section 29A of the IBC defines persons who are not eligible to be resolution applicants.
Persons, including those who are undischarged insolvent, wilful defaulters, promoters of non-performing assets, convicted for any offence punishable with imprisonment for two years or prohibited by Sebi, executed a guarantee in favour of a creditor in respect of a corporate debtor -- are barred under Section 29A.
NCLAT has again revived the application filed by the resolution professional before the NCLT, "which may be heard and decided afresh in accordance with the law," the order said.