India – Shareholders Permission Not Required For Approval Of The Resolution Plan Under The Insolvency Code.

 

1 November, 2017

 

 

On October 25, 2017, the Ministry of Corporate Affairs (“MCA”) issued a clarification stating that there is no requirement under the Insolvency and Bankruptcy Code, 2016 (“Code”) to obtain shareholders’ approval for the implementation of a resolution plan approved pursuant to the provisions of the Code.

 

This clarification was issued in view of the requirement under Section 30 (2) (e) of the Code, which specifies that a resolution professional must confirm that the resolution plan does not contravene any laws. Therefore, clarity was sought by the market participants/ stakeholders as to whether a company may be required to obtain shareholders’ approval for actions contemplated under the resolution plan, as is otherwise required under the Companies Act, 2013.

 

In the light of the above, the MCA has clarified that all approvals required to be obtained from the shareholders of the company under the Companies Act, 2013 or any other applicable law, shall be deemed to have been provided by the shareholders, upon the approval of the resolution plan by the National Company Law Tribunal. Having said this, note that the resolution plan is still required to not contravene any applicable laws. For example, the resolution cannot contemplate 100% foreign investment in a sector where such investment is not permitted.