NCLT Initiates Insolvency Proceedings Against Essel Group's Shirpur Gold Refinery Following ₹92 Cr Default
NCLT Initiates Insolvency Proceedings Against Essel Group's Shirpur Gold Refinery Following ₹92 Cr Default
Shirpur Gold Refinery Limited (SGRL), part of Subhash Chandra's Essel Group, has entered corporate insolvency resolution proceedings following an application filed by Prudent ARC at Mumbai's National Company Law Tribunal (NCLT).
The application stems from SGRL's default on dues amounting to approximately ₹92 crores. This includes a ₹65 crores loan and accumulated interest of ₹27 crores up to October 14, 2021. As collateral for the loan, SGRL pledged its excess shares along with shares of Zed Media, Zed Entertainment, and Dish TV India, valued at ₹32.50 crores.
The NCLT has appointed Ashish Vyas as the interim resolution professional (IRP) to oversee the Corporate Insolvency Resolution Process (CIRP) of SGRL. This decision was made by a division bench consisting of judicial member KR Saji Kumar and technical member Sanjiv Dutt, who acknowledged the financial creditor's successful demonstration of debt and default. SGRL admitted the outstanding debt, meeting the criteria for admission under Section 7 of the Insolvency and Bankruptcy Code (IBC).
This ruling follows an interim order-cum-show-cause notice issued by the Securities and Exchange Board of India (SEBI) in April 2023. The notice alleges fund diversion by Shirpur and its affiliates to promoter firms.
The CIRP application was originally filed by the Industrial Finance Corporation of India (IFCI) and subsequently taken up by Prudent ARC Limited. It cited a total default amounting to ₹91.98 crores, including the principal and accrued interest at 14% per annum. The default stemmed from a ₹65 crores loan extended by IFCI to Shirpur, which turned into a non-performing asset (NPA). Despite SGRL's attempts to resolve the issue through one-time settlement proposals, creditors rejected these offers.
The NCLT addressed several key contentions in the case involving SGRL and Prudent ARC Limited regarding the initiation of Corporate Insolvency Resolution Proceedings (CIRP).
Prudent argued that despite the loan agreement being insufficiently stamped, it constituted a valid and enforceable document under the IBC. It also justified SGRL's default classification as a non-performing asset (NPA) due to missed interest payments from July 2019 and principal payments from October 2019.
In response, Shirpur contested the default date and the enforceability of the loan agreement, citing insufficient stamping. It argued that the rejection of its One-Time Settlement (OTS) proposals did not imply a lack of intention to settle, thus questioning the grounds for initiating CIRP.
The NCLT ruled that the date of default as per Prudent's classification (December 31, 2019, the NPA classification date) was appropriate for initiating insolvency proceedings, despite Shirpur's claim that the default date should be earlier (July 15, 2019).
Regarding the stamping issue, the NCLT held that insufficient stamping did not render the loan agreement unenforceable under the IBC. It referenced legal precedents, including decisions by the Madras High Court and the Supreme Court affirming that stamping deficiencies are curable and do not invalidate documents in IBC proceedings.
On the matter of OTS proposal rejection, the NCLT cited Supreme Court and NCLAT decisions, affirming that creditors are not obligated to accept lesser amounts under OTS if they can recover the full loan amount through other means, such as auctioning secured property.
Consequently, the NCLT admitted the Prudent's application for CIRP against Shirpur, invoking a moratorium under Section 14 of the IBC to halt legal proceedings against Shirpur during the resolution process.
