Post-Resolution Capital Restructuring Rejected as Outside Approved Resolution Plan: NCLT Hyderabad

Canara Bank Ltd. Vs Feno Plast Limited  (NCLT Hyderabad)

The NCLT Hyderabad considered an application filed under Section 60(5) of the Insolvency and Bankruptcy Code, 2016, read with Rule 11 of the National Company Law Tribunal Rules, 2016, by the Successful Resolution Applicant (SRA) of the Corporate Debtor. The applicant sought permission to undertake post-implementation capital restructuring, including reduction, consolidation and re-issuance of equity share capital, continuation of the Corporate Debtor’s listing on the stock exchange, continuation of public shareholding in a proportionately diluted manner, and consequential directions to BSE and other regulatory authorities for necessary approvals and compliances.

The applicant submitted that the Resolution Plan had been approved by the Tribunal on 22.01.2025 and had been successfully implemented. It had infused ₹76,52,82,382 through M/s. Bhavya Construction Private Limited and payments had been made to stakeholders, resulting in closure of the corporate insolvency resolution process. The approved Resolution Plan contemplated cancellation of existing share capital and delisting of the Corporate Debtor. However, the proposed delisting was not implemented and the applicant subsequently proposed continuing the listing of the Corporate Debtor’s shares, stating that continued listing would enhance enterprise value, provide liquidity to public shareholders, promote transparency and facilitate future fundraising.

The applicant contended that the proposed restructuring did not alter the core commercial terms of the approved Resolution Plan or affect creditors’ rights, as all creditors had already been paid in accordance with the plan. It further submitted that the continuation of public shareholding without monetary consideration would not prejudice any stakeholder and would instead enable existing public shareholders to participate in the future value of the revived company. The applicant relied upon decisions of the Supreme Court concerning the clean slate doctrine, revival of the corporate debtor as a going concern, value maximisation and judicial deference to commercial wisdom.

The applicant further stated that, after an earlier application, it had approached the Bombay Stock Exchange for approval of a record date to implement reduction and extinguishment of share capital. The Listing Compliance and Operations Department of BSE declined to approve the record date and directed the applicant to obtain appropriate directions from the Tribunal. Consequently, the present application sought directions for selective reduction and extinguishment of share capital and continuation of listing. The applicant proposed cancellation of the entire shareholding of the erstwhile promoters without payment, reduction of public shareholding by 95%, re-issue of one equity share for every twenty shares held by public shareholders, treatment of fractional entitlements through a trust, allotment of shares to new promoters, continuation of listing, and compliance with Rule 19A(5) of the Securities Contracts (Regulation) Rules, 1957 by increasing public shareholding to 25% within three years.

The Tribunal observed that Section 60(5)(c) of the Insolvency and Bankruptcy Code empowers the Adjudicating Authority to decide questions of law or fact arising out of or relating to insolvency resolution proceedings and to grant appropriate reliefs to facilitate implementation of a resolution plan. It also noted the NCLAT decision recognising the Tribunal’s jurisdiction to consider applications concerning issues arising from implementation of sales conducted as going concerns.

However, the Tribunal found that the proposed restructuring contemplated significant changes, including reduction of public shareholding by 95%, induction of a new promoter and continuation of the Corporate Debtor as a listed entity after implementation of the approved Resolution Plan. It held that although such restructuring could form part of an approved resolution plan in an appropriate case, implementation of measures not forming part of the approved plan could not bypass compliance with other applicable statutory frameworks unless expressly or impliedly overridden by the Insolvency and Bankruptcy Code. Accordingly, where restructuring was not incorporated in the approved Resolution Plan, compliance with the Companies Act, 2013, the Securities Contracts (Regulation) Act, 1956, SEBI regulations and other applicable statutory provisions remained necessary.

The Tribunal further observed that the approved Resolution Plan specifically provided for delisting of the Corporate Debtor, complete cancellation of all existing equity shares, extinguishment of shareholders’ rights and issuance of shares only to the successful resolution applicant. In contrast, the present proposal sought continuation of listing, retention of 5% public shareholding and induction of unidentified new promoters. The Tribunal held that these proposals were materially different from the approved Resolution Plan and therefore could not be regarded as flowing from or being covered by it.

Consequently, the Tribunal held that no directions could be issued in the present proceedings permitting restructuring or reduction of public shareholding, induction of new promoters or continuation of listing outside the approved Resolution Plan and without compliance with the applicable statutory framework. It clarified that the applicant or Corporate Debtor remained free to pursue such proposals before the appropriate forum or competent authority in accordance with the Companies Act, 2013, the Securities Contracts (Regulation) Act, 1956, SEBI regulations and other applicable laws. The application was accordingly dismissed while leaving all rights and contentions open.

Cases Discussed:

• RMY Industries LLP vs. Apple Industries Pvt. Ltd., Company Appeal (AT) (Insolvency) No. 1114 of 2022.
• Committee of Creditors of Essar Steel vs. Satish Kumar Gupta, (2020) 8 SCC 531.
• Sashidhar vs. Indian Overseas Bank, (2019) 12 SCC 150.
• Swiss Ribbons Pvt. Ltd. vs. Union of India, (2019) 4 SCC 17.

FULL TEXT OF THE NCLT JUDGMENT/ORDER

1. The present Application has been filed by the Mr. Krishna Kumar Haridas, a Successful Resolution Applicant (SRA) of M/s. Fenoplast Limited (Corporate Debtor/CD), under Section 60(5) of the Insolvency and Bankruptcy Code, 2016, read with Rule 11 of the National Company Law Tribunal Rules, 2016, seeking grant of the following essential reliefs and concessions:

a) Grant leave to the Applicant to undertake the proposed post-implementation capital restructuring of the Corporate Debtor, including the reduction, consolidation, and re-issuance of equity share capital, and the continuation of listing of equity shares of corporate debtor and continuation existing public shareholders in a proportionately diluted manner, as detailed in paragraph V(C) of this application;

b) Direct the Respondent Stock Exchange (BSE Limited), and other regulatory authorities for all necessary approvals, exemptions, and compliances required to effectuate the proposed restructuring and to continue the listing of the Corporate Debtor’s shares;

c) Direct the concerned regulatory authorities to consider any such applications from the Applicant sympathetically and in accordance with law, keeping in view the successful resolution and revival of the Corporate Debtor;

Application

2. It is submitted that this Authority vide order dated 22.01.2025 approved the Resolution Plan for submitted by the Applicant for CD and the Applicant had successfully implemented the Plan.

3. It is submitted that the Applicant infused Rs. 76,52,82,382/- through M/s. Bhavya Construction Private Limited and the payments were also made to the stakeholders resulting in closure of CIRP.

4. It is submitted that the CD was a listed public company and in the Resolution Plan at para 4.3 provides for the “cancellation of existing shares/capital reduction” while para 4.8 provided for “de-listing application to the Stock Exchanges where the shares of the Company are listed”.

5. It is submitted that the delisting was not implemented and now the Applicant considering the future growth prospects, proposes to continue listing of shares of the CD which is a value appreciative path. It is further submitted that the existing public shareholders shall continue as shareholders of the revived CD, subject to a proportionate dilution and restructuring of equity. The said approach is beneficial for the reasons as below:

i. Enhance the enterprise value of the CD.

ii. Ensures liquidity for the existing public shareholders.

iii. Promotes Transparency and good governance through continued regulatory oversight.

iv. Facilitates access to capital markets for future growth and fundraising.

6. It is submitted that the present proposal doesn’t modify, alter or dilute the core commercial terms of the approved Resolution Plan. Further, it doesn’t affect the distribution framework or the rights of any creditors as all were paid in accordance with the approved plan. Also, the proposed measure is a bona-fide, forward looking and value maximising step undertaken post successful implementation of the plan.

7. It is submitted that at the time of the approval of the Plan, the equity shares of the CD held negligible or no value due to CD’s financial distress. The proposed the continuation of the public shareholding without monetary consideration doesn’t result in any prejudice to any stakeholder. Further, it confers a beneficial opportunity upon the public shareholders to participate in the upside of the revived entity, which they would otherwise have lost completely upon delisting and capital extinguishment.

8. The Applicant relied on decisions of the Hon’ble Supreme Court in Committee of Creditors of Essar Steel vs. Satish Kumar Gupta (2020) 8 SCC 531 stating that the present proposal aligns with “clean slate doctrine” and Swiss Ribbons Pvt. Ltd. vs. Union of India (2019) 4 SCC 17 reiterating the objective of the Code is to revive CD as going concern 85 value maximization.

9. Further, the Applicant placed reliance on the decision of the Supreme Court in Sashidhar vs. Indian Overseas Bank (2019) 12 SCC 150 to state that commercial wisdom of the stakeholders, particularly post-implementation decisions of the SRA that promotes revival, deserves judicial deference.

10. It is submitted that SRA filed I.A (IBC) No. 423 of 2026 in CP (IB) No. 10/7/HDB/2022 before this Authority for which this Authority directed “to approach the appropriate Authority in this Regard”. Accordingly, the Applicant approached Bombay Stock Exchange (BSE) and filed an application fixing the record date for initiation of “reduction and extinguishment of share capital” of the CD on 11.03.2026 along with requisite documents.

11. It is submitted that the Listing Compliance and Operations Department of BSE, in response to the application by the Applicant, has not approved record date for reduction of the share capital and directed the Applicant to obtain the suitable directions from this Authority as it was not approved earlier.

12. Thus, the present Application is filed in compliance with the Listing Compliance and Operations Department of BSE, seeking appropriate directions for selective reduction and extinguishment of share capital and further listing of the equity shares of the company by filing of the same application which was filed before in this regard. Therefore, the Applicant proposes the following capital restructure to be undertaken:

i. The Existing Shareholding Pattern of the CD

ii. The Post-Reduction Shareholding Pattern of the CD

13. It is submitted that according to the above pattern, the entire shareholding of the erstwhile promoters and promoter group of CD would stand cancelled and extinguished without any payment while the shareholding of the Public Shareholders other than existing promoters to the extent of 95% of their shareholding as on Record date to be announced by the Company.

14. It is submitted that upon cancellation of the Public Shareholding, a re­issue of One (1) equity share of Rs. 10/- each for every 20 equity shares of Rs. 10/- each held by the Public Shareholders on the Record date to be announced by the Company.

15. It is submitted that the cancellation shall not require any payment by the CD to any of the shareholders except by issue of One (1) Equity Share Rs. 10/- each for every 20 Equity Shares held by the Shareholders other than existing promoters as on the Record Date.

16. It is further submitted that the fractional entitlements if any, shall be aggregated and held by the trust, nominated by the Board on that behalf, who shall sell such shares in the market at such price and distribute the net sale proceeds to the said shareholder in proportion to their holding. Also, the equity shares issued as aforesaid to the shareholding shall rank in paripasu to the existing shares of the Company and shall be listed forthwith in the stock exchanges where it is presently listed.

17. The Shareholding pattern of the CD- Post Reduction and allotment of shares to SRA and Funding Source:

18. It is submitted that upon completion of the above, the Company is still adhering to the Regulation 19A(5) of Securities Contracts (Regulation) Rules, 1957, by maintaining a public shareholding of 8.95% of the expanded equity as a result of implementation of the Resolution Plan.

19. It is submitted that, in view of the statutory reliefs and concessions available to companies emerging from the CIRP, and to facilitate a smooth transition of the Corporate Debtor into a fully compliant listed entity, the CD may be permitted, in terms of Rule 19A(5) of the Securities Contracts (Regulation) Rules, 1957, to increase its public shareholding to the prescribed minimum level of 25% within a period of three years from the date on which such shareholding falls below the stipulated threshold, in the manner specified by SEBI.

20. In the aforesaid circumstances and in view of the submissions made hereinabove, the Applicant has filed the present Application. We have heard the counsel for Applicant and perused entire records.

Findings

21. Under Section 60(5)(c) of the IB Code, the Adjudicating Authority has the jurisdiction to entertain and dispose of any question of law or fact arising out of or in relation to the insolvency resolution or liquidation proceedings of the Corporate Debtor, including the authority to grant necessary reliefs, immunities, or protections from past liabilities to ensure that the Successful Bidder can commence business on a clean slate. The NCLAT, Delhi in RMY Industries LLP vs. Apple Industries Pvt. Ltd., (Company Appeal (AT) (Insolvency) No. 1114 of 2022) affirmed the Adjudicating Authority’s power to consider applications from the Liquidator or Successful Bidder regarding the terms of an auction sale, particularly when sold as a going concern, to address any arising issues.

22. We, however, note that the proposal put forth by the Applicant contemplates, inter alia, restructuring and reduction of the public shareholding in the Corporate Debtor by 95%, induction of a new promoter, and continuation of the Corporate Debtor as a listed entity after approval and implementation of the resolution plan.

23. While such measures of restructuring may, in an appropriate case, form part of an approved resolution plan, their implementation cannot be treated as automatically dispensing with compliance under other applicable statutory frameworks, except to the extent such compliance is expressly or by necessary implication overridden by the provisions of the IBC or is otherwise dealt with under an approved resolution plan in accordance with law. Where such restructuring is not part of the approved resolution plan, the benefit of any such dispensation or overriding effect under the IBC cannot be claimed. Such actions would, therefore, remain subject to the provisions of the Companies Act, 2013, the Securities Contracts (Regulation) Act, 1956, the applicable regulations framed by the Securities and Exchange Board of India, and other relevant statutory provisions, including such approvals, permissions, exemptions or sanctions as may be required from the competent authorities.

24. In the present case, the proposed restructuring does not form part of the approved resolution plan. The approved resolution plan provided for delisting of the Corporate Debtor from the stock exchanges on which its equity shares were listed, whereas the present scheme seeks continuation of the Corporate Debtor as a listed entity. Similarly, while the approved resolution plan provided for cancellation of all existing issued, subscribed and paid-up equity shares “completely” and for all rights of the equity shareholders to be “extinguished and written off’, the present Application seeks retention of public shareholding up to 5%, apparently for the purpose of continuing the listing of the Corporate Debtor. Further, and more significantly, while the approved resolution plan contemplated issuance of shares only to the resolution applicant, Mr. Krishna Kumar Haridas, the present Application seeks induction of unidentified “New Promoters” as shareholders.

25. In these circumstances, the Applicant cannot seek implementation of the proposed restructuring in the present proceedings on the premise that it stands covered by, or flows from, the approved resolution plan. Accordingly, no direction can be issued in the present Application for restructuring or reduction of the public shareholding of the Corporate Debtor, or for induction of a new promoter, dehors the approved resolution plan and without compliance with the applicable statutory framework.

26. It shall, however, be open to the Applicant / Corporate Debtor to take such steps as may be permissible in law before the appropriate forum or competent authority, in accordance with the Companies Act, 2013, the Securities Contracts (Regulation) Act, 1956, the applicable SEBI regulations, and other relevant statutory provisions. All rights and contentions of the parties in that regard are left open.

Accordingly, this I.A. No. 559 of 2026 in C.P (IB) No.10/7/HDB/2012 is dismissed 85 disposed of.