Fate of several companies is hanging in the balance as defaulting promoters approach the NCLT to settle dues with creditors. In May, the Mumbai Bench of the NCLT had rejected Sterling Biotech’s application for withdrawal of insolvency plea and passed a liquidation order. The Bench had questioned the lenders on accepting a deal from absconding promoters. The NCLAT, however, stayed the liquidation order after an appeal by the banks this month.
Experts feel defaulting promoters might misuse the Companies Act provision to get a backdoor entry into their firms. “The Section 29A of IBC
and Section 230 of Companies Act are conflicting in spirit, not in the letters of law. Both laws are working at cross purpose,” a legal consultant said. About 99 stressed firms have opted for withdrawal of resolution applications under Section 12A and over 400 have gone for liquidation.
“Liquidation has happened in cases where there is negligible value left,” the senior government official quoted earlier said.
The government is expecting that the current trend of liquidation overtaking resolution will get reversed and the huge backlog of distressed assets will be cleared in the next few years.
The Insolvency and Bankruptcy Board of India has proposed changes in liquidation norms to provide defaulting promoters a chance to file for a compromise or arrangement in event of liquidation.