Lenders have been wary of allowing promoters in resolution plans after a November 23 amendment to the Insolvency and Bankruptcy Code, in which the government banned resolution applicants who have been wilful defaulters or indulged in fraudulent or undervalued transactions to bid for distressed assets.
“Merely because there is a default by a borrower in repayment of borrowed amount to a creditor does not render the borrower or its guarantor, dishonest. Every act of default cannot be equated with malfeasance,” the NCLT ruled.
The company had filed an application seeking the bench to clarify whether the promoter was still qualified to bid under the provisions of the ordinance.
A couple of days before the ordinance was promulgated, lenders had given a near go-ahead to Anjanee Kumar Lakhotia’s resolution plan to salvage his company. However, after the November 23 ordinance, the company’s committee of creditors expressed its wariness over multiple meetings.
It had refused to allow the promoter to participate in the process and asked the resolution professional to invite fresh proposals for the company.
The insolvency resolution deadline for the company would expire on December 23 after it got an extension of 90 days and, with no other comprehensive resolution plan in sight, it could have gone in for liquidation.
The ruling read that since no guarantee had been invoked against the promoter and no demand had been made, he could not be deemed to be a defaulter.
Disqualifying the entire class of guarantors would be discriminatory and is violative of Article 14 of the Constitution of India and cannot be stated to have a logical nexus with the objective sought to be achieved by the ordinance,” said the order.
Guarantor here implies the promoter. Article 14 of the Constitution ensures right to equality before the law.
This, however, does not mean that Lakhotia’s plan would be approved as the final call is still to be taken by the lenders. “We have clarified the legal position only and the committee of creditors has to take an independent decision on the resolution plan of the applicant,” the order said.