The Mumbai NCLAT held that the former promoter/director was not eligible to submit a resolution plan as he contributed to the downfall of a company.
The Corporate Debtor, M/s Blue Frog Media Pvt. Ltd. filed a petition under Section 10 of the Insolvency Bankruptcy Code, 2016 (IBC) seeking initiation of Corporate Insolvency Resolution Process (CIRP) against itself. In 2021, the NCLT initiated CIRP against the Corporate Debtor.
The Resolution Applicant, Mr. Mahesh Mathai, who is a Financial Creditor of the Corporate Debtor, submitted a resolution plan which was approved by the Committee of Creditors (CoC). An application under Section 30(6) of IBC was filed before the NCLT for approval of the plan.
The Resolution Professional noted that the Resolution Applicant had created and was a shareholder of the Corporate Debtor company in 2007. The resolution applicant was a director of the corporate debtor from 2006 to 2018 and held 5,13,458 equity shares in it as of March 31, 2021. Before the petition to begin CIRP against the Corporate Debtor was filed, the Resolution Applicant resigned from the position of Director.
The NCLAT noted that the incumbent management and promoters of a corporate debtor should not be allowed to regain control of their company. This notion is based on the reasoning that those who have contributed to the downfall of the corporate debtor should not be allowed to play a continuing role in its future. The assumption that resonates through all of these decisions is that a corporate debtor’s downfall is due to the actions of its management.
“We are of the view that Mr. Mahesh Mathai is not eligible to submit a Resolution Plan as he was a former promoter/director of the company and has contributed to the downfall of the company. Further, it appears from his shareholding pattern that he was always involved in the company, in fact after his resignation and whilst the company was under financial distress, his shareholding went up from 4,36,757 equity shares to 5,13,458 shares equity shares in the year 2019-2020. The said Resolution Plan cannot be allowed as it is in violation of rationale behind insertion of Section 29A, which was to protect the interest of creditors, from persons who have contributed to the mismanagement and defaults committed by the Corporate Debtor,” the NCLAT said.
Case Title: Resolution Professional of “ Blue Frog Media Private Limited V/S M/s Blue Frog Media Private Limited