McNally Sayaji: NCLAT dismisses Kotak Mahindra Bank’s appeal to set aside insolvency proceedings order

MESL is the first Williamson Magor Group firm against which insolvency proceeding has been ordered.

The National Company Law Appellate Tribunal (NCLAT) has dismissed Kotak Mahindra Bank’s appeal to set aside the insolvency proceedings order passed by the Kolkata bench of the NCLT against McNally Sayaji Engineering (MESL), a Williamson Magor Group company.

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The Kolkata bench of the National Company Law Tribunal (NCLT) had admitted ICICI Bank’s application under Section 7 of the IBC for initiating the Corporate Insolvency Resolution Process (CIRP) against MESL for a default.

Following that, Kotak Mahindra Bank moved the NCLAT against the NCLT’s order, submitting that ICICI Bank unilaterally filed the insolvency application before the tribunal during the pendency of deliberations in the Joint Lenders Meeting on the restructuring of account of McNally Sayaji.

In its application, Kotak Mahindra Bank further said five banks i.e. Kotak Mahindra Bank, ICICI Bank, DBS Bank, IDBI Bank and State Bank of India had advanced loan to the company, but the NCLT “failed to appreciate” that more than 50% members of lenders of the consortium had opposed the initiation of CIRP, as they were considering the restructuring of loan outside the scheme of the Insolvency and Bankruptcy Code (IBC).

“According to them the restructuring of loan is more beneficial to the creditors as they were not taking the haircut. In the eventuality of a resolution plan being implemented or liquidation process being initiated, the financial creditors, including Kotak Mahindra Bank, will have to take a haircut,” Kotak Mahindra Bank said in its appeal before the appellate tribunal.

Kotak Mahindra Bank’s appeal was resisted by the ICICI Bank on a variety of grounds. ICICI Bank submitted before the appellate tribunal that Kotak Mahindra Bank has “no locus standi” to file this appeal as the lender was one of the financial creditors to the debt-ridden company. It said KMB was aware of the pendency of Section 7 application from the very inception, however, no impleadment/intervention application was filed before the adjudicating authority.

“The Appellant (KMB) does not fall within the phrase any aggrieved person under Section 61(1) of the IBC. Thus, at the instance of Kotak Mahindra Bank the present appeal is not maintainable,” ICICI Bank submitted.

After hearing the case, the NCLAT bench of Justice Jarat Kumar Jain and Member (Technical) Ashok Kumar Mishra on Monday dismissed Kotak Mahindra Bank’s appeals. “…the Appellant has no locus standi to file this Appeal,” the bench ruled on November 29.

Notably, in a major jolt to the financially stressed Williamson Magor Group, the NCLT on February 11 ordered the commencement of CIRP against MESL, and Jitendra Lohia, registered with Insolvency and Bankruptcy Board of India, was appointed as Interim Resolution Professional. MESL is the first Williamson Magor Group firm against which insolvency proceeding has been ordered.

The counsel representing Kotak Mahindra Bank had submitted before the NCLAT that the NCLT order had resulted into causing great harm and prejudice, not only to the bank but also to other members of the lender’s consortium who were “trying their level best to recover” the maximum amount of their outstanding dues from MESL. “The outstanding dues of corporate debtor amounting to Rs 237.20 crore.

Whereas on 30.09.2019 the liquidation value of the assets of the corporate debtor came to be only Rs 72.11 crore. Therefore, under no circumstances lenders can recover the outstanding dues without taking a huge haircuts, either any resolution plan, or in the eventuality of liquidation.”

ICICI Bank had submitted that they had rejected the restructuring proposal and vide email dated January 08, 2021 the decision was communicated to all the lenders.

“The appellant Kotak Mahindra Bank has no valid ground to challenge the impugned order and failed to point out any legal or factual flaw in the impugned order,” it added.