NCLAT rejects Edelweiss pleas challenging Synergy resolution plan

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New Delhi | Updated: December 15, 2018 3:38:59 AM

Lenders to the debt-ridden firm had on June 24, 2017 approved Synergies Dooray’s resolution plan, with 91.06% majority.

nclt, edelweissThe ARC alleged that SCL’s resolution plan, submitted at the Hyderabad bench of the NCLT, was contrary to the law and the agreement SCL had signed on November 24, 2016 with Millennium Finance (MFL) to assign a major part of the debt holding was invalid and was entered into with the malafide ulterior motive of reducing its voting rights.

The National Company Law Appellate Tribunal (NCLAT) on Friday dismissed Edelweiss Asset Reconstruction Company’s multiple pleas challenging the August 2, 2017 order of the National Company Law Tribunal (NCLT) that approved Synergy Dooray Automotive’s (SDAL) resolution plan.

Lenders to the debt-ridden firm had on June 24, 2017 approved Synergies Dooray’s resolution plan, with 91.06% majority, submitted by a related party Synergies Castings (SCL) that provided for merger of SCL with SDAL.

The ARC also alleged that SCL’s resolution plan, submitted at the Hyderabad bench of the NCLT, was contrary to the law and the agreement SCL had signed on November 24, 2016 with Millennium Finance (MFL) to assign a major part of the debt holding was invalid and was entered into with the malafide ulterior motive of reducing its voting rights. “In absence of any merit, we dismiss these appeals,” the two-member NCLAT bench, headed by its chairperson Justice SJ Mukhpadhaya, said in the order.

Rejecting Edelweiss’s objections to the merger proposal in the resolution plan, the bench observed, “The arguments of the appellant (Edelweiss) that merger and amalgamation of the companies cannot be proposed in the resolution plan or such proposal is violative of clause (e) of sub-section (2) of Section (30) is fit to be rejected”.

Edelweiss’ counsel had argued that the Insolvency and Bankruptcy Code (IBC) did not contemplate/permit/provide for effecting amalgamation before implementation of the resolution plan especially in case such amalgamation has an effect of extinguishment of the corporate debtor itself. The two-member NCLAT bench, in its order, said that once a plan is approved, one may argue that in terms of the provision of the Companies Act, a formal order of amalgamation was required, but no such argument can be advanced at the time of the approval of the resolution plan which merely proposes merger.
It also found no problem with the debt-assigning matter by SCL to MFL. “We hereby declare that both SCL and MFL were eligible to execute the assignment agreements in question. The adjudicating authority rightly held that there is no merit in this argument.”

Edelweiss had alleged that, as a result of the “highly dubious and purported assignment of debt by SCL to MFL, its voting share in the Committee of Creditors was reduced from 41.59% to a mere 9.85%. It had filed a petition with the NCLT on March 6,2017 challenging the validity of the assignment agreements. It also suggested that SCL’s bid should be improved to make it more beneficial for all stakeholders since the liquidation value was not arrived at correctly and the repayment to financial creditors with 94% haircut was detrimental to their interest.

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Apart from SCL, there were two other bidders for SDAL. The resolution plan submitted by SMB Ashes Industries and Suiyas Industries were unanimously rejected by the CoC in its second meeting held on June 24, 2017.

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