Gensol Engineering, EV Arm Go Under Insolvency Resolution With IRP Twist
IREDA sought CIRP against Gensol Engineering and Gensol EV Lease, claiming defaults of 510 crore rupees and 218.95 crore rupees, respectively
(The Corner Office Journal) -- India's National Company Law Tribunal (NCLT) admitted Gensol Engineering Ltd. and its subsidiary Gensol EV Lease Ltd. for insolvency resolution, but with a twist on the appointment of interim resolution professional (IRP).
The development comes after the financial creditor Indian Renewable Energy Development Agency Ltd. (IREDA) in May sought initiation of corporate insolvency resolution process (CIRP) against Gensol Engineering and Gensol EV alleging defaults.
State-run IREDA sought a recovery of 510 crore rupees ($59 million) from Gensol Engineering and 218.95 crore rupees from Gensol EV.
IREDA, a non-banking financial company, provides financial assistance for setting up projects related to new and renewable energy sources as well as energy efficiency/conservation initiatives.
Gensol Engineering is involved in engineering and renewable energy projects as well as electric vehicle leasing arrangements, while Gensol EV is engaged in the business of leasing electric vehicles and related infrastructure.
The NCLT’s Ahmedabad bench admitted IREDA’s insolvency resolution petitions against both companies on 13 June. The orders were passed by Judicial Member Shammi Khan and Technical Member Sanjeev Kumar Sharma.
The NCLT named Keshav Khaneja as IRP for both companies, rejecting IREDA’s request to appoint EY Restructuring LLP’s Pulkit Gupta as IRP.
Following are the key highlights from the NCLT's orders:
Gensol Engineering Observations
=> The existence of debt is undisputed, as admitted by Gensol Engineering in its reply on 2 June.
=> The total default of 510.10 crore rupees exceeds the Insolvency & Bankruptcy Code (IBC) threshold of one crore rupees.
=> The petition satisfies substantive requirements of IBC’s Section 7, and Gensol Engineering's defenses on default evidence, IBC misuse, and authorization are unsustainable.
=> The Debts Recovery Tribunal’s (DRT) 28 May order and the Securities and Exchange Board of India’s (SEBI) 15 April order reinforce the need for CIRP to protect creditors and address governance issues.
=> Gensol Engineering’s parallel DRT proceedings do not bar CIRP, as no moratorium exists pre-admission and upon admission, the moratorium under Section 14(1) of the IBC will override such proceedings.
=> Gensol Engineering’s default justifies the admission of the petition and the initiation of CIRP under the IBC. Hence, the application for initiation of CIRP against the company deserves to be admitted.
=> The default is primarily based on cross-default clauses in the facility agreements, which stipulate that a default by any obligor, including Gensol Engineering, constitutes an event of default for Gensol EV’s facilities.
=> The tribunal finds that the cross-default clauses are contractually valid, as evidenced by the facility agreements. Further, 4 May notice showed that Gensol EV committed other defaults, which were also not cured.
=> Gensol EV’s failure to respond to the notice or cure the defaults supports IREDA’s case.
=> The Securities Appellate Tribunal's 7 May order disposing of Gensol Engineering’s appeal against the SEBI order further weakens Gensol EV's reliance on the ongoing investigation as a defense.
=> The tribunal finds that IREDA has established multiple grounds for default even beyond cross-default clauses. The procedural objections do not materially affect the petition's maintainability.
=> Gensol EV's arguments regarding solvency, recovery motives, and the SEBI investigation do not negate the default under Section 7 of the IBC.
The tribunal is satisfied that IREDA is entitled to the relief as sought and Gensol EV's default justifies the admission of the petition and the initiation of CIRP.
IRP Twist
IREDA had proposed the appointment of Gupta as IRP for both Gensol Engineering and Gensol EV.
However, the companies objected to Gupta’s appointment, citing conflict of interest due to his association with EY Restructuring LLP, linked to Ernst & Young LLP, which was engaged by Gensol Engineering for advisory services.
The NCLT said the companies’ objection to Gupta's eligibility as IRP is critical.
“The tribunal finds that the undisclosed relationship raised concerns about Mr. Gupta's eligibility, necessitating the appointment of an alternative IRP,” the NCLT said in its order for Gensol Engineering. It also issued a similar observation in Gensol EV’s order.
As a result, the NCLT appointed Khaneja as IRP for both companies and asked him to conduct the CIRP process under the bankruptcy regulations.
Note: $1 = 86.1141 Indian rupees
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