NCLAT grants stay on liquidation order passed against Jyoti Structures

According to the IBC regulations, any resolution plan needs to be approved by a minimum of 66 per cent of the lenders

The National Company Law Appellate Tribunal (NCLAT) has granted a stay on the liquidation order passed against insolvent firm Jyoti Structures. The stay order comes after a group of investors led by Sharad Sanghi and 800 employees of the corporate debtor appealed against it.

Jyoti Structures is the first case ordered for liquidation from the Reserve Bank of India’s first list of 12 large corporate debtors to be admitted for insolvency proceedings.

Sanghi, the founder of Netmagic Solutions, and a group of investors were the only applicants interested in acquiring the company. The other investors include Madhusudan Kela, formerly with Reliance Capital, and Manish Kejriwal, managing partner of Kedaara Capital, amongst others.

They offered to infuse Rs 1.5-1.7 billion in equity capital upfront into Jyoti Structures, while paying the lenders Rs 30 billion over the next 15 years. On April 02, when the plan was put to vote, around 81 per cent of the lenders to Jyoti Structures voted in favour of the resolution.

According to Insolvency and Bankruptcy Code (IBC) regulations, any resolution plan needs to be approved by a minimum of 66 per cent of the lenders. However, DBS Bank, one of the financial creditors, who voted in opposition to the resolution plan, through its legal counsel told the NCLT in Mumbai that there were issues in the way the CIRP process had taken place.

Further, the Corporate Insolvency and Resolution Process (CIRP) deadline of 270 days had passed by this July. Therefore, the plea for an eight-day extension was sought by the appointed resolution professional (RP) last month, which was opposed by DBS Bank.As a consequence, the National Company Law Tribunal (NCLT) bench in Mumbai rejected the plan and asked the resolution professional to file for liquidation on July 25.

As Jyoti Structures owed financial creditors around Rs 80 billion, the lenders stood to incur a haircut of a little over 60 per cent on the principal loan amount, or a loss of Rs 50 billion, overall, if the plan was approved. Jyoti Structures was admitted for proceedings under the IBC on July 4, 2017. It provides engineering, procurement and construction services in the power transmission sector.

The NCLAT in New Delhi will hear the case next on September 18. Jyoti Structures’ stock price closed at Rs 2.95 on the NSE, up by 3.51 per cent from its previous closing price on Friday.