NEW DELHI: Providing clarity, the government today said resolution plans under the Insolvency and Bankruptcy Code does not require approval of the shareholders.
The clarification comes against the backdrop of concerns in certain quarters about the possibility of promoters of a company blocking insolvency resolution process under the existing provisions of the Code.
Provisions of Section 30 and 31 provide a detailed procedure from the time of receiving the resolution plan by the insolvency resolution professional to its approval by the adjudicating authority, the corporate affairs ministry said in a circular.
"... there is no requirement for obtaining approval of shareholders/ members of the corporate debtor during this process," it added.
According to the ministry, stakeholders have sought clarification on whether resolution plan requires shareholders' nod.
Resolution process is taken up only after it is approved by the National Company Law Tribunal (NCLT), the adjudicating authority.
Under Section 31(1) of the Code, a resolution plan approved by the adjudicating authority shall be binding on the corporate debtor and its employees, members, creditors, guarantors and other stakeholders involved in the resolution plan.
The circular also assumes significance since a significant number of lenders are seeking relief under the Code, which seeks to provide a market-determined resolution in a time-bound manner. The Reserve Bank of India (RBI) has referred at least 12 large non-performing assets cases for resolution under the Code.
The ministry, which is implementing the Code, has also clarified that approval of shareholders of the company for a particular action required in the resolution plan is deemed to have been given by the adjudicating authority.
"The clarification is sought in view of the requirement under Section 30(2)(e) of the Code for the resolution professional to confirm that each resolution plan received by him does not contravene any of the provisions of the law for the time being in force," the circular noted.