NCLT Hyderabad declines plea for post-plan capital restructuring and continued listing in Canara Bank Ltd. Vs Feno Plast Limited

Background and context

The National Company Law Tribunal, Hyderabad Bench, in Canara Bank Ltd. Vs Feno Plast Limited, dealt with a significant issue arising after completion of the corporate insolvency resolution process of M/s. Fenoplast Limited.

The Successful Resolution Applicant (SRA), Mr. Krishna Kumar Haridas, moved an application under Section 60(5) of the Insolvency and Bankruptcy Code, 2016 (IBC), read with Rule 11 of the National Company Law Tribunal Rules, 2016.

Although the Resolution Plan for the Corporate Debtor had already been approved and implemented, the SRA sought judicial directions to allow a fresh round of capital restructuring and continued stock exchange listing, which were not originally envisaged in the approved Resolution Plan.

The Hyderabad Bench was therefore called upon to decide a critical question:

Can substantial post-implementation capital restructuring and continuation of listing be permitted by the Adjudicating Authority when such measures were not incorporated in the approved Resolution Plan, and when the plan itself envisaged complete cancellation of existing share capital and delisting?

Reliefs sought by the Successful Resolution Applicant

The SRA requested the Tribunal to exercise its residuary and incidental jurisdiction under Section 60(5) of the IBC and Rule 11 NCLT Rules by granting, inter alia, the following reliefs:

  1. Permission for post-implementation capital restructuring, including:

    • Reduction of equity share capital
    • Consolidation and re-issuance of shares
    • Continuation of listing of the Corporate Debtor’s equity shares
    • Continuation of public shareholding, albeit in a proportionately diluted form

  2. Directions to BSE Limited and other regulators:

    • To grant all necessary approvals, exemptions and compliances
    • To permit the proposed restructuring and continuation of listing

  3. Guidance to regulatory bodies:

    • To consider the Corporate Debtor’s applications “sympathetically and in accordance with law”, having regard to the successful revival under the IBC.

Status of Resolution Plan and implementation

Approval and implementation of the plan

  • The Resolution Plan submitted by the SRA in respect of M/s. Fenoplast Limited was approved by the NCLT vide order dated 22.01.2025.
  • The SRA implemented the approved Plan and infused funds amounting to Rs. 76,52,82,382/- through M/s. Bhavya Construction Private Limited.
  • Payments to all stakeholders were completed in line with the Plan, following which the CIRP stood closed.

Key terms of the approved Resolution Plan

The approved Resolution Plan had specifically addressed the share capital and listing status of the Corporate Debtor:

  • At paragraph 4.3, the Plan provided for “cancellation of existing shares/capital reduction”.
  • At paragraph 4.8, it further contemplated “de-listing application to the Stock Exchanges where the shares of the Company are listed”.

Thus, the core intent of the approved Plan was:

  • To cancel all then-existing equity shares of the Corporate Debtor; and
  • To delist the company from the stock exchanges.

SRA’s new proposal: Continuation of listing and partial retention of public shareholding

Rationale advanced by the SRA

The SRA admitted that the delisting envisaged under the Plan was never actually implemented. In view of the improved financial prospects of the Corporate Debtor post-resolution, the SRA now proposed to:

  • Continue the listing of the Corporate Debtor’s equity shares; and
  • Allow existing public shareholders to remain as shareholders (subject to heavy dilution and restructuring).

The SRA contended that this revised approach would:

  • Enhance overall enterprise value of the Corporate Debtor;
  • Provide continuing liquidity for the existing public shareholders;
  • Promote better governance and transparency via continued regulatory oversight; and
  • Provide future access to capital markets for fundraising and growth.

The SRA emphasised that:

The proposed steps do not alter the commercial terms of the Resolution Plan nor do they disturb the distribution waterfall or rights of creditors, as all creditors stand paid as per the approved Plan.

In its view, the continuation of public shareholding (without any monetary outgo from the Corporate Debtor) would:

  • Cause no prejudice to any stakeholder, and
  • Offer public shareholders a fresh opportunity to benefit from the future upside of the revived entity, instead of losing their interest entirely due to delisting and cancellation.

Judicial precedents relied upon