NCLAT upholds NCLT order to initiate insolvency proceedings against Meenakshi Energy

The National Company Law Appellate Tribunal (NCLAT) on Thursday upheld the orders of the NCLT directing to initiate insolvency proceedings against Meenakshi Energy Ltd.

A three-member bench has dismissed the plea filed by its director and its shareholder India Power Corporation Ltd observing that the company had committed default.
Moreover, the NCLAT also rejected the contentions that its financial creditor SBI cannot move the NCLT after invoking the pledged shares of the company and virtually owning 95.2 per cent shares of Meenakshi Energy.

The petitioners had maintained that SBI after being a majority shareholder of the company cannot maintain this application as a financial creditor.

SBI CAP Trustee Company had invoked pledged shares of Meenakshi Energy by the India Power Corporation on December 20, 2017.

In addition to this, the petitioners had also contended that SBI had moved its insolvency plea before the NCLT following a RBI Circular of February 12, 2018, and the Supreme Court had struck it down declaring the circular as ultra vires.

This was opposed by SBI, saying that it was wrongly contended that the invocation of pledge amounted to transfer of shares or discharge of debt.

According to SBI, pawnee's rights are governed by the Indian Contract Act, 1872. It mandates that when a pawnor makes default then the pawnee does not have a right to appropriate and transfer ownership to itself of the pledged goods.

The NCLAT rejected the contentions of director and shareholder of Meenakshi Energy saying that its account was declared NPA on October 2017. Internal approval for filing the application for insolvency under Section 7 of IBC was sought on August 4, 2018, and the application was filed on January 23, 2019.

"In the application, there is no reference that the application is filed in pursuant to the RBI Circular," it said. Over invocation of the pledged shares, the NCLAT said it was mentioned in the notice dated December 20, 2017 that invocation of pledged shares shall not prejudice the rights and remedies available to the financial creditor under the financing documents.

"It is true that after invocation of the pledge, shares were transferred in dematerialised form in the DP Account of SBI CAP Trustee Company Ltd and it became the beneficial owner of the shares; it does not mean that the financial creditor became the beneficial owner of the shares and it loses the status of financial creditor," said the NCLAT.

It further said: "We hold that the financial creditor has not filed the application under Section 7 of I&B Code, in pursuant to the RBI Circular dated February 1, 2018, and even after the invocation of the pledged shares by SBI CAP Trustee Company Ltd, the financial Creditor can maintain the application.

The appellate tribunal said that NCLT has rightly admitted SBI's plea to initiate insolvency against Meenakshi Energy and added that it was undisputed fact" that the corporate debtor has committed default in repayment of debt.

"Thus, we found no ground to interfere in these appeals. Thus, the appeals are hereby dismissed, it said.

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Earlier, the Hyderabad bench of the National Company Law Tribunal (NCLT) had in November 7, 2019 allowed the plea filed by SBI to initiate insolvency proceedings against Meenakshi Energy.

Meenakshi Energy had availed a term loan and working capital from SBI to set up a 300-MW plant in Phase I and a 700-MW plant in Phase II, both coal-fired thermal power projects near Krishnapatnam.