NCLAT sets aside penalty on lenders for delay in Mudra Denim insolvency

The National Company Law Appellate Tribunal (NCLAT) has set aside the penalty imposed against lenders of debt-ridden Mudra Denim, saying there was no laxity on their part for delay in insolvency process.

The Mumbai bench of the National Company Law Tribunal had, on November 11 last year, while deciding creditors' plea seeking extension of deadline to complete the insolvency process, imposed a cost of Rs 55,000 on the Committee of Creditors (COC).

This was challenged before NCLAT by COC through IDBI Bank, contending that there was not any laxity on the part of COC which decided to take Mudra Denim for liquidation on December 13, 2023, prior to the expiry of the CIRP (Corporate Insolvency Resolution Process) period.

All facts could not be brought to the notice since the COC was not appearing before the NCLT, hence the imposition of cost was uncalled for, the lenders submitted.

Also, the company's resolution professional said that e-voting on the appointment of the liquidator was completed on January 5, 2024, and the application was moved on February 9, 2024. 

Consenting to the arguments, a three-member NCLAT bench said there are facts which indicate that there was sufficient reason for filing the application on February 9, 2024, by the RP and COC which cannot be held responsible for committing a laxity.

"We thus are satisfied that imposition of cost by the impugned order deserves to be set aside. We allow the appeal and delete the cost of Rs 55,000 imposed on COC," said NCLAT.

The Insolvency & Bankruptcy Code (IBC) mandates to complete CIRP within 330 days, which includes time taken during litigations.

As per Section 12(1) of the Code, the CIRP shall be completed within a period of 180 days from the date of initiation.

However, NCLT may grant a one-time extension of 90 days. The maximum time within which CIRP must be mandatorily completed, including any extension or litigation period, is 330 days.