The National Company Law Appellate Tribunal (NCLAT) has clarified that former promoters and directors of a company undergoing insolvency process are not automatically disqualified from submitting resolution plans. The tribunal said that such individuals can bid for the insolvent company if they meet the eligibility criteria under Section 29A of the Insolvency and Bankruptcy Code (IBC).
Section 29A of IBC
Section 29A of the IBC was introduced in 2017 to prevent defaulting promoters from regaining control of their companies through the insolvency resolution process. The section lists various grounds for disqualifying a person from submitting a resolution plan, such as being an undischarged insolvent, a wilful defaulter, a convicted criminal, or having an account classified as a non-performing asset.
NCLAT’s Ruling
The NCLAT’s ruling came in the case of Blue Frog Media, where the resolution plan submitted by Mahesh Mathai, a former director of the company, was rejected by the Mumbai bench of the National Company Law Tribunal (NCLT). The NCLT had held that Mathai was ineligible under Section 29A as he was a promoter and director of the company till 2018 when he resigned.
However, the NCLAT set aside the NCLT’s order and held that Mathai was not ineligible under any of the clauses of Section 29A. The tribunal said that the mere fact that someone was a promoter and director of a company does not make them ineligible to submit a resolution plan, unless they fall under specific clauses of Section 29A. The tribunal also noted that Mathai’s plan was approved by the Committee of Creditors (CoC) with a 91.86 per cent vote share.
Implications of the Ruling
The NCLAT’s ruling is significant as it provides clarity on the eligibility of former promoters and directors to participate in the insolvency resolution process. It emphasizes that ineligibility is determined based on specific criteria rather than a general prohibition. This ruling opens up the possibility for former promoters and directors to contribute to the revival of companies undergoing insolvency proceedings, provided they meet the eligibility requirements.
The NCLAT’s ruling in the Blue Frog Media case sets a precedent for future cases involving the eligibility of former promoters and directors in insolvency resolution processes. It reinforces the importance of adhering to the specific criteria outlined in Section 29A of the IBC to determine ineligibility. This ruling ensures a fair and transparent process, allowing for the participation of individuals who can contribute to the successful resolution of insolvent companies.