New Delhi, June 20: The National Company Law Appellate Tribunal (NCLAT) has held that the liquidation process of a company under the Insolvency and Bankruptcy Code (IBC) holds precedence over outcome of an arbitration proceeding, and therefore process under IBC shall not be stopped.
In its judgment, a three-member Bench of NCLAT held that Bharat Heavy Electricals Limited’s (BHEL) objections to liquidation of Tamil Nadu-based Surana Power were not valid as majority of secured creditors had given their consent to liquidation, The Indian Express reported.
“It would be prejudicial to stall the liquidation process at the instance of a single creditor having only 26.24 per cent share (in value), in the secured assets. The respondent (BHEL) does not hold a superior charge from the rest of the secured financial creditors in the secured assets,” it said.
Surana Power, which was admitted into insolvency in January 2019, did not receive any valid resolution plans, and was therefore ordered to be liquidated by the Chennai Bench of National Company Law Tribunal (NCLT).
During the liquidation proceedings, state-run BHEL won an ex-parte arbitration award against Surana Power, which gave it lien over all the equipment and goods lying at the latter’s unit, as well as its partially or fully constructed buildings.
Following the award, BHEL, which is also one of the secured creditors, refused to give its consent for liquidation as it would have resulted in it getting lesser share according to IBC’s waterfall mechanism. BHEL’s refusal was challenged by the liquidator at the Chennai bench of NCLT.
The adjudicating authority had then ruled in favour of BHEL and said the state-run company had full rights to realise the security interests it had won as part of the arbitration.
The NCLAT however, set aside NCLT’s ruling and said that since BHEL did not have the minimum 60 per cent value in secured interest, it could not be allowed to stall the IBC proceedings.