Shareholders Have No Locus To Challenge The Initiation Of CIRP Against Corporate Debtor: NCLAT Chennai
The National Company Law Appellate Tribunal ("NCLAT"), Chennai Bench composed members Justice M. Venugopal (Judicial Member) and Shri Naresh Salecha (Technical Member) when deciding an appeal by the plaintiff in Nirej Vadakkedathu Paul v Sunstar Hotels and Estates Private Limited and Sunstar Hotels and Estates Private Limited, has decided the shareholders of Corporate Debtor have no locus to contest the initiation of CIRP against the Corporate Debtor. The Bench confirmed the initiation of CIRP against M/s McDowell Holdings Limited.
Background Information The company M/s McDowell Holdings Limited ("Corporate Debtor") is a firm that was founded through Mr. Vijay Mallya and was at first named United Golden Beverages Limited. The Corporate Debtor was a beneficiary of Inter Corporate Deposit ('ICD') from Zuari Fertilisers and Chemicals Limited that was later merged into Zurai Agro Chemical Limited (ZACL). On 17.06.2019 the Corporate Debtor signed an agreement of settlement in conjunction with ZACL along with Mangalore Chemicals and Fertilizers Limited in this agreement, the Debtor was required to pay the amount of. 10,60,56,810/- in addition to interest due ICD.
M/s Sunstar Hotels and Estates Pvt. Ltd. ("Financial Creditor") signed an arrangement with ZACL to relieve the entire obligation that the company's debtor has. This means that it was the Financial Creditor entered into the role of ZACL through the subrogation right for recovery of Dues from the Corporate Debtor. In the meantime, the Financial Creditor filed a petition pursuant to Section 7 of the Insolvency and Bankruptcy Code, 2016, ("IBC") and sought the commencement of the an Corporate Insolvency Resolution Process ("CIRP") against the Corporate Debtor for a default amounting to an amount of. 16,80,66,348/-.
The shareholders of the corporate debtor (Mr. Nirej Vadakkedathu Paul and eight others) submitted an application for intervening in Section 7 petition. Section seven petition. In the evening of 08.04.2022 the Adjudicating Authority admitted Section 7 petition and began CIRP proceedings in the case of the Corporate Debtor. The same day, the intervention request was rejected. The Shareholders/intervenors filed an appeal before NCLAT challenging the order dated 08.04.2022.
The Shareholders claimed it was because they believed that the Financial Creditor was attempting to capture their Corporate Debtor, whose investment through the shares of other corporations has been valued at more than Rs. 1000 crores. It is believed that the Financial Creditor is acting on behalf of the former promoter the Mr. Vijay Mallya and trying to take over the business on behalf of the Ex-Promoter.
This Section 7 petition was a coercive act between both the Financial Creditor and the Corporate Debtor under the guise of a debt assignment along with the alleged default was admitted to CIRP in order to defraud a variety of stakeholders. NCLAT Verdict The Bench observed that if an Section 7 petition is filed against an Corporate Debtor and the debt and default are ruled out in the Adjudicating Authority, then there is no law that allows shareholders in the Corporate Debtor to contest the admission of the debtor to CIRP.
The Bench ruled that shareholders from the corporate debtor don't have any right to challenge the admission of the Corporate Debtors to CIRP. Therefore, the appeal was dismissed and the inception of CIRP against the Corporate Debtor was confirmed.
Case Title: Nirej Vadakkedathu Paul v Sunstar Hotels and Estates Private Limited Case No. : Company Appeal (AT) (CH) (Ins.) No. 142 of 2022. Counsel for Appellant: Mr. P.H. Arvindh Pandian, Senior Advocate For Mr. Athiban Vijay, Advocates. Counsel for Respondent: Mr. P.S. Raman, Senior Advocate For Mr. Parthasarathy and Mr. Rahul Balaji, Advocates for R-1. Mr. Rishi Srinivas, Advocate for R-2. Click Here To Read/ Download Order
