Approved Resolution Plan Can Be Amended To Ensure Statutory Compliance U/S 31 Of IBC: NCLT Kolkata

Brief Facts

On 04.10.2023, this Adjudicating Authority approved the Resolution Plan submitted by the SRA – Kundan Care Limited in respect of the Corporate Debtor Eastern Sugar & Industries Limited who was admitted in CIRP on 11.02.2022.

The approved resolution plan provides the reduction of the public shareholding to 2.28% which is claimed as contrary to Rule 19A (5) of the Securities Contracts (Regulation) Rules, 1957, hereinafter referred to as “SCR Rules”,

The Applicant contends that the Rule 19A (5) of the SCR Rules, was amended on 18th June 2021, and post amendment the Regulations provide that where the public shareholding in a listed company falls below 25% as a result of implementation of the plan, the SRA will ensure that public shareholding is increased within a time bound manner. It further provides that public shareholding in a listed company should not fall below 5% as a result of the implementation of the resolution plan. Hence this application.

Contentions

The applicant submitted that there can be no bar in changing the shareholding to conform with the law after the approval of the resolution plan by the Adjudicating Authority.

• That the non-availability of the listing facilities would prevent the SRA from raising funds from the public and that will seriously impact and jeopardize the applicant's plan to revive the company upon takeover.
• That the said change does not prejudice anyone else as the SRA is reallocating shares from its own shares to the public and thus no one can be aggrieved by such an act and that the NSE is a statutory body under the Securities Contract (Regulation) Act, 1956 whereas SEBI is the market regulator under the same act. Thus, the respondent NSE cannot object to complying with regulations under the same Act.

Per contra, the respondent submitted that the resolution plan proposed the reduction of public shareholding to 2.28% is in violation of Rule 19A (5) of the SCR Rules.

• That the SCR Rules were amended on June 18, 2021, to include the 5% minimum public shareholding Rule i.e., Rule 19A (5), which was way before the submission of the resolution plan before CoC i.e., on 17.11.2022. the applicant SRA cannot be excused from complying with a provision of law that was in existence when the plan and its addendum was submitted.
• That after approval of a resolution plan by the Adjudicating Authority, it cannot be altered or modified. Reliance is placed on the judgment rendered by the Hon'ble Apex Court in M.K. Rajagopalan v. Sr. Periasamy Palani Gounder (2023).

NCLT's Analysis

At the outset, the tribunal noted that the main allegation against the corporate debtor as raised by the respondent NSE is that the shareholdings being allotted to the public as provided in the resolution plan approved on 04.10.2023, by the AA is 2.28% which is non-compliant with the mandate as enshrined under Rule 19A (5) of the SCR Rules.

The tribunal further reiterated the settled position of law and observed that it is a trite, axiomatic, and settled position of law that once a resolution plan is approved by the CoC and subsequently, approved by the Adjudicating Authority, the same cannot be modified or changed.

The tribunal further noted that the present application is different as it seeks the compliance of the statutory provisions which appear to have been violated. The tribunal observed that the present application has been preferred for modification of a particular clause relating to public shareholdings which does not conform with Rule 19A (5) of the SCR Rules which mandates that every listed company shall maintain a public shareholding of at least 5% as a consequence of the implementation of the resolution plan approved by the Adjudicating Authority.

The tribunal noted that it was the duty of the RP to examine the resolution plan received by him to confirm that the plan or any part of the plan was not in violation of any existing laws in terms of Section 30(2)(e) of the I&B Code.

The tribunal further observed that thus, mere failure to discharge the duty by RP in respect of verification of substantive rules of maintaining minimum 5% public shareholding in the plan, which is approved by this Adjudicating Authority, a resolution of the corporate debtor as well as the implementation of a resolution plan should not be jeopardized.

The tribunal further referred to the NCLT Hyderabad judgment in Ganapa Narsi Reddy v. BSE Limited (2023) wherein the application seeking amendment to the approved resolution plan to comply with Rule 19 of the SCRA Rules, was allowed.The tribunal further referred to the NCLT Delhi order in Mr. Mohd. Nazim Khan v. M/s. Redhex IT Solutions Private Limited & Anr. (2023) wherein the amended resolution plan was approved.

The tribunal further observed that the modification sought in the resolution plan approved on 04.10.2023, is not for any change or modification of plan value or its distribution. The modification is in fact beneficial to the public shareholders at large. The tribunal allowed the application and the plan was amended as sought for by the applicant.

Accordingly, the present application was allowed and disposed of.

Case Title: Kundan Minerals and Metals Limited v. (National Stock Exchange of India Limited, Mumbai

Case Reference: I.A. (IB) No. 1720/KB/2024

Judgment Date: 24/10/2024

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