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NCLAT upholds NCLT order on Bharati Defence liquidation

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NCLAT upholds NCLT order on Bharati Defence liquidation

Company classified as ‘going concern’

The National Company Law Appellate Tribunal (NCLAT) has upheld the decision of the NCLT to liquidate debt-laden Bharati Defence and Infrastructure.

The insolvency court in Mumbai had ordered liquidation of the company after rejecting the resolution plan submitted by Edelweiss Asset Reconstruction Co Ltd, leaving two dozen defence vessels stranded. A clutch of lenders stand to lose ₹11,373.40 crore which the firm owes them.

Going concern

The NCLAT, while upholding the National Company Law Tribunal’s (NCLT) decision, said the company should be classified as a “going concern”. In accounting parlance, a going concern means a company can continue to operate. There are more than 850 employees on the rolls of what was once India’s second biggest private shipyard with a much sought-after licence from the government to build warships.

Earlier, a resolution plan was backed by the Committee of Creditors (CoC) in which Edelweiss ARC had an 82.7 per cent voting share as a financial creditor after taking over debt of ₹6,248.84 crore from some 20 lenders by paying ₹1,813.90 crore.

NCLT apprehensive

NCLT had cast doubts over the genuineness of the plan. “The resolution applicant has not given a practical and viable plan to manage the affairs of the corporate debtor (Bharati). The plan contains a lot of uncertainties, a lot of speculation. The public shareholding in the company would be reduced to a mere 2 per cent from the current substantial level of approximately 60 per cent,” the NCLT had noted.

The NCLT order was challenged on the ground that liquidation order has been passed with “material irregularity” due to fraud committed by the ‘Resolution Professional’.

While NCLAT rejected the challenge, the Tribunal pointed out that considering the national importance attached to product line of the company, the customers, especially Ministry of Defence, Indian Coast Guard, Customs, the order book size, in addition to advances paid by various government departments, Bharati Defence and Infrastructure has been classified as a “going concern”.

Vijay Kumar V Iyer has been appointed as the liquidator and the tribunal has directed that work should be taken from existing employees and workmen.

Excerpts from Gaurav’s Blog

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