regular-article-logo Monday, 05 June 2023

Shareholders can’t fight insolvency decision

The NCLT was hearing a clutch of cases relating to the insolvency proceedings in the two Srei non-bank finance companies

A Staff Reporter Calcutta Published 01.04.23, 06:12 AM
Solicitor-general of India Tushar Mehta.

Solicitor-general of India Tushar Mehta. Sourced by the Telegraph

Solicitor-General of India Tushar Mehta on Friday appeared virtually before the Calcutta bench of the National Company Law Tribunal, raising a broader concern on whether a shareholder in an individual capacity can approach the tribunal seeking a recall of an earlier order relating to the initiation of corporate insolvency resolution process (CIRP).

The NCLT was hearing a clutch of cases relating to the insolvency proceedings in the two Srei non-bank finance companies. Mehta had appeared on behalf of the RBI-appointed administrator for Srei.


“Daily your lordships are dealing with IBC proceedings. The companies are heard through the administrators, through their management. If every shareholder is to be read with the right or locus to approach, the very object, intent and purpose of IBC is lost,” Mehta observed.

“A shareholder can only speak through the company, or rather, only the company can speak for the shareholder. This has to be applied more rigorously, considering the object of the code,” he said.

He buttressed the observation with multiple legal citations, including the NCLAT order in the case of Nirej V Paul vs Sunstar Hotels where it was observed that there is no specific law which allows shareholders of the corporate debtor to challenge the admission of CIRP, once the debt due and the default is established by the adjudicating authority in an application made by the financial creditor filed under section 7 of the IBC.

Mehta also argued the maintainability of the application filed by the erstwhile promoters of the Srei group under section 10A of the IBC.

“During the Covid period, there was a window provided (under section 10A) that if there is a default in that period, no CIRP should be initiated. But in the present case, default continued even thereafter,” he said.

The erstwhile promoters had earlier urged the Calcutta bench of the NCLT to set aside the order admitting the NBFCs under IBC because the alleged default was during the window of section 10A.

Mehta on Friday also argued that the order of admission of CIRP had first “merged” in the order of NCLAT which dismissed the petition of Adisri Commercial, a shareholder of Srei Infrastructure, and thereafter in the order of the apex court which had also dismissed a subsequent appeal seeking a stay on the insolvency proceedings, and, therefore, there is nothing to be recalled.

The hearing on the matter is next scheduled for April 10.

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