No need for shareholder nod if NCLT clears resolution plan

In a letter to stakeholders, the Ministry of Corporate Affairs has said for the resolution plan to be approved, shareholders’ approval need not be sought separately. The ministry’s letter is in response to stakeholders, including lawyers asking for clarification on the issue. 

Any resolution plan, which is executed as part of the Insolvency & Bankruptcy Code with the National Company Law Tribunal’s (NCLT) nod, will not require the shareholders in the debtor company to approve it, according to the circular. 

The confusion arose because under the Companies Act, transactions such as transfer of assets or shares usually require shareholders’ approval. Sources said the ministry had received multiple representations seeking clarity on the issue and therefore a circular had been issued. 

The ministry has explained in its circular that Section 30(2) of the Insolvency and Bankruptcy Code ensures that the resolution plan approved by the committee of creditors of the adjudicating authority with the provisions of the applicable laws makes it legally implementable. 

According to the IBC, once the resolution professional places the approved plan before the NCLT, a call is taken on whether it can be implemented or not. Once approved, the company starts working in that direction to clear dues. If the resolution plan is rejected by the tribunal, the company goes in for liquidation, unless the matter is challenged at the National Company Law Appellate Tribunal (NCLAT).