NCLAT admits McLeod promoter appeal, to decide on constitution of CoC

The National Company Law Appellate Tribunal (NCLAT) has admitted an appeal filed by McLeod Russel promoter, Aditya Khaitan, against insolvency proceedings and will decide on staying the formation of committee of creditors (CoC) after Techno Electric & Engineering, the financial creditor, files its reply.

In its order, the appellate tribunal said, “We have considered the submissions, the appeal is admitted for hearing, however, we will consider the application for stay after filing reply by the respondent.”

The order is dated Wednesday after the first hearing on Khaitan plea.

Sources close to the matter pointed out that since there was no stay as on date, the CoC would be constituted as per IBC timelines.

“Under the provisions of the Code and the CIRP regulations, the interim resolution professional (IRP) has to carry out the corporate insolvency resolution process in terms of timelines stipulated. Under Regulation 17(1), the interim resolution professional ought to file a report before the adjudicating authority certifying the constitution of CoC within 30 days from appointment of interim resolution professional,” said Udit Gupta, counsel for Techno. 

On August 6, the National Company Law Tribunal (NCLT) had admitted an application filed by Techno for initiating corporate insolvency resolution process (CIRP) against McLeod. The last date for submission of claims was August 20.

In the appellate tribunal, on Wednesday, Abhishek Manu Singhvi, senior counsel for Khaitan, submitted that Techno had no locus or authority to file an application under Section 7 of the Insolvency and Bankruptcy Code (IBC) as there is no financial debt and corporate debtor (McLeod) has not committed any default.

Section 7 allows a financial creditor to file an application for initiating corporate insolvency resolution against a corporate debtor before the adjudicating authority when a default has occurred. 

In support of his argument, Singhvi drew attention to various documents. He submitted that the appellant had a good case in the appeal and therefore the formation of the CoC may be stayed, mentioned the order.

This was opposed by Kapil Sibal, senior counsel representing the Techno side.

The appellate tribunal has given Techno 10 days’ time to file the reply and the next date for hearing has been fixed for September 8. The appellate tribunal will decide on the matter of stay thereafter.

However, some sources close to the development said that there were few options before the promoters of McLeod Russel without an interim stay.

“An out-of-court settlement with Techno Electric Engineering could be considered before the CoC is constituted. Alternatively, withdrawal from CIRP under Section 12A can be pursued with the consent of 90 per cent lenders” they indicated.

Khaitan’s main grounds for appeal is that the financial statement of Techno and transcript of conference call showed that the debt was not owed to Techno but to another entity.

In the NCLT, too, McLeod had argued that the balance sheet of Techno for the financial year 2018-2019 shows that there was a loan of Rs 100 crore, which was not reflected thereafter, which means a refund is done of Rs 100 crore or the debt has been assigned to someone else.

The other point was that McLeod Russel enjoyed protection under the agreement till monetization of secured assets as per the agreement with Techno and only after monetization of security could a default be ascertained.