NCLAT Overturns Rs.55,000 Penalty On Mudra Denim Lenders

NCLAT Overturns Rs.55,000 Penalty On Mudra Denim Lenders

States they were not responsible for the delay in the insolvency process

A three-member Mumbai bench of the National Company Law Appellate Tribunal (NCLAT) has set aside the Rs.55,000 penalty against the Committee of Creditors (COC) of the debt-ridden Mudra Denim.

The appellate tribunal imposed the fine in November last while deciding the lenders’s plea seeking an extension of the deadline to complete the insolvency process.

Through IDBI Bank, the CoC challenged it before the NCLAT stating there was no laxity on their part. The COC took Mudra Denim for liquidation on 13 December 2023, prior to the expiry of the Corporate Insolvency Resolution Process (CIRP).

The lenders submitted that the facts were not displayed, as the COC was not appearing before the NCLT. Thus, the penalty was not applicable.

The company's resolution professional (RP) submitted that e-voting on the appointment of the liquidator ended on 05 January 2024, and the application was moved to 09 February 2024.

The NCLAT said certain facts indicated that the RP had sufficient reasons for filing the application on 09 February and the COC could not be held responsible for the laxity.

The appellate tribunal held, “We are satisfied that imposition of cost by the impugned order deserves to be set aside. We allow the appeal and delete the cost of Rs 55,000 imposed on the COC.”

Under the Insolvency & Bankruptcy Code (IBC) it is mandatory to complete the CIRP within 330 days, including the time during litigations. As per Section 12(1), the insolvency process must be completed within 180 days from the date of initiation.

However, NCLT could grant a one-time extension of 90 days. The maximum time within which the CIRP must be mandatorily completed (including extension or litigation period), is 330 days.