NCLAT Upholds Ineligibility of Appellant-SRA to Submit a Resolution Plan as He Was Barred from Securities Market by SEBI

Case Details: Aggarsain Spinners Ltd. v. Shreeji Cotfab Ltd. - [2024] 166 taxmann.com 44 (NCLAT-New Delhi)

Judiciary and Counsel Details

• Rakesh Kumar Jain, Judicial Member & Dr. Alok Srivastava, Technical Member
• Puneet Bali, Himanshu Vij, Eshna Kumar, Surjeet Bhadu & Akhil Anand, Advs. for the Appellant. & Others.
• Aalok Jaga, Ms Pallavi Singh, A.P.S. Madaan, Abhishek Anand, Mohak Sharma, Karan Kohli, Prateek Kushwaha, Viren Sharma, Pathik Choudhury, Sahil Bhatia, Mohit, Nikhil Jain, Manish Jain, Ms Divya Sharma & Siddhant Jain, Advs. for the Respondent. & Others.

Facts of the Case

In the instant case, the corporate debtor was under the corporate insolvency resolution process (CIRP) and a Resolution Professional (RP) was appointed. RP received several resolution plans, with the appellant’s plan ultimately being approved by the Committee of Creditors (CoC) with a 92.55% voting share.

RP filed an application u/s 31 of the IBC to approve the appellant’s resolution plan. Meanwhile, respondent no.1 filed an application on the ground that the appellant was ineligible u/s 29A(f) of the IBC because it was barred by the SEBI from the securities market at the time of plan submission and approval.

The Adjudicating Authority (NCLT) admitted respondent no.1’s application, declared the appellant ineligible and, dismissed the appellant’s request to clarify SEBI’s position. Thereafter, the appellant challenged the NCLT’s order through an appeal.

It was noted that the appellant submitted a resolution plan of action for listing equity shares on a nationwide stock exchange as required by the 10-10-2016 circular. SEBI acknowledged receipt of the plan but noted that the exchange had not yet received additional documents needed to verify the company’s listing status on other exchanges.

NCLAT Held

The NCLAT observed that the appellant was also informed that the process to be followed by the appellant was available on the exchange website of SEBI and was further requested to complete the process as intimated to exchange (action plan) as soon as possible to avoid initiation of action against promoters/directors of the company as prescribed in the SEBI Circular.

However, despite multiple warnings and deadlines, the appellant failed to comply, and the SEBI informed the appellant of potential sanctions against its promoters and directors for non-compliance.

The NCLAT held that the appellant was categorically debarred for reasons that it failed to comply with the mandatory direction issued by the SEBI in circular dated 10.10.2016 and 01.08.2017 by which the appellant was repeatedly cautioned that in case, one of the options was not exercised within the timeline prescribed, necessary action would be taken as prescribed in circular dated 10-10.2016.

The NCLAT, further held that since the appellant was barred in the BSE list from accessing the security market for 10 years and when the resolution plan was submitted on 28.01.2019, the appellant was ineligible in view of section 29(A)(f) of the IBC. Therefore, the impugned order did not require any interference as there was no merit in the instant appeals, and hence, the same was to be dismissed.

List of Cases Reviewed

• Phoenix ARC (P.) Ltd. v. GPI Textiles Ltd. [2024] 166 taxmann.com 43 (NCLT -Chd.)(para 46) affirmed, See Annex
• M/s Embassy Property Developments Pvt. Ltd. v. State of Karnataka & Ors., Civil Appeal No. 9170 of 2019 (para 41) followed.