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September 04, 2019

NCLAT Order Sets New Precedent; Allowing Promoters To Take Back Control Of Firm After Lenders Have Been Paid


[ by Legal Era News Network ]

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The National Company Law Appellate Tribunal (NCLAT) has set aside a lower court order to liquidate debt-ridden Sterling Biotech whose promoters Chetan Sandesara and Nitin Sandesara are absconding.

This would allow its promoters to take back control of the company once they make full payment to the lenders.

The ruling may well set a precedent that will have ramifications for companies willing to clear dues after they are admitted for insolvency resolution.

Recently, the a three-member NCLAT bench set aside a May 8 order of the National Company Law Tribunal’s (NCLT) Mumbai bench and allowed withdrawal of a petition filed under Section 7 of the Insolvency and Bankruptcy Code (IBC).

In its order, the NCLAT stated that the entire payment under one-time settlement (OTS) shall be made by the promoters and not through the corporate debtor or its properties, adding that the liquidator would continue with the process until the entire payment is made to the lenders.

Earlier, in June, the NCLAT had stayed the corporate insolvency resolution process of the Gujarat-based Sterling Biotech after its workmen and lenders challenged the NCLT order before the NCLAT.

The dedicated bankruptcy court in Mumbai had rejected the plea of the lenders, led by Andhra Bank, to withdraw from the CIRP process.

Incidentally, more than 90% of lenders had approved the settlement offer of around Rs 3,945 crore and withdrawal of the insolvency case under Section 12 (A) of the IBC. The lenders received 5% of the default amount on the day of default. Total dues to the lenders stand above Rs 8,100 crore.

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