Arokiasamy Joseb Raj vs Pathukasahasram Raghunathan Raman & ...

IN THE MATTER OF: Arokiasamy Joseb Raj .....Appellant Vs. Pathukasahasram Raghunathan Raman & Ors. ......Respondents

With

Company Appeal (AT) (Insolvency)No. 117 of 2019

IN THE MATTER OF: Arokiasamy Joseb Raj .....Appellant Vs. Pathukasahasram Raghunathan Raman & Ors. ......Respondents Present : For Appellant: Mr. Divyanshu Rai, Advocate

For Respondents: Mr. C.J. Sathish Kumar, Counsel for R-1 Mr. Kunal Tandon, Ms. Niti Jain, Ms. Richa, Advocates for R-2 to R-6 Mr. P.R. Raman, RP in Person

17.07.2019 - The Appellant - Promoter of 'M/s. Oceanic Edibles

International Limited' filed an application u/s 60(5) before the Adjudicating

....contd./ Authority ('National Company Law Tribunal') Single Bench, Chennai for

exclusion of certain period to enable the 'Committee of Creditors' to accept the

'Resolution Plan'. The Adjudicating Authority in the absence of any merit

rejected the prayer by impugned order dated 10th December, 2018 and ordered

for liquidation.

2. The Appellant (promoter) therefore, preferred two separate appeals one

challenging the order of rejection of the period of Appellant for exclusion of time

and another order passed u/s 33(1)(a).

3. Learned counsel for the Appellant submits that no 'Information

Memorandum' was prepared and for the said reason proper 'Resolution Plan'

could not be filed.

4. Mr. R.P. Raman, 'Resolution Professional', Mr. Kunal Tandon for

'Committee of Creditors' appears in person and submits that 'Information

Memorandum' was prepared and published on 30th July, 2018 and circulated

and pursuant to which no viable 'Resolution Plan' was submitted.

5. 'Resolution Professional' further submits that one 'Resolution Plan' was

submitted by one M/s. 'B.R. Traders' which was rejected and appeal preferred

by M/s. 'B.R. Traders' was also rejected by this Appellate Tribunal.

6. Having heard learned counsel for the parties and taking into

consideration the fact, that 'Information Memorandum' was published and

in the absence of any viable or feasible 'Resolution Plan' order of Liquidation

Company Appeal (AT) (Insolvency)No. 116 of 2019 2 was passed. We are not inclined to interfere with the order dated 10th

December, 2018.

7. However, we make it clear that during the period of liquidation, the

Liquidator is to ensure that the 'Corporate Debtor' continues as a going

concern and Liquidator is required to act in terms of decision of this

Appellate Tribunal in Company Appeal (AT) (Insolvency) No. 224 of 2018

in Y. Shivram Prasad Vs.S. Dhanapal & Ors. passed on 27th February,

2019 wherein the following observations and directions were issued: -

"12. The aforesaid issue fell for consideration

before this Appellate Tribunal in "S.C.

Sekaran v. Amit Gupta & Ors.─ Company

Appeal (AT) (Insolvency) Nos. 495 & 496 of

2018" wherein this Appellate Tribunal having

noticed the decision of the Hon'ble Supreme

Court in "Swiss Ribbon Pvt. Ltd. & Anr. v.

Union of India & Ors. (Supra) and "Meghal

Homes Pvt. Ltd." observed and held:

"5. We have heard the learned counsel for the

parties and perused the record. The Hon'ble

Supreme Court in 'Swiss Ribbons Pvt. Ltd. &

Anr. vs. Union of India & Ors. - Writ Petition

Company Appeal (AT) (Insolvency)No. 116 of 2019 3 (Civil) No. 99 of 2018' by its judgment dated

25th January, 2019, observed as follows:

"11. .........What is interesting to note is that

the Preamble does not, in any manner, refer to

liquidation, which is only availed of as a last resort

if there is either no resolution plan or the resolution

plans submitted are not up to the mark. Even in

liquidation, the liquidator can sell the

business of the corporate debtor as a going

concern. [See ArcelorMittal (supra) at paragraph

83, footnote 3]. (Emphasis added)

12. It can thus be seen that the primary focus of

the legislation is to ensure revival and continuation

of the corporate debtor by protecting the corporate

debtor from its own management and from a

corporate death by liquidation. The Code is thus a

beneficial legislation which puts the corporate

debtor back on its feet, not being a mere recovery

legislation for creditors. The interests of the

corporate debtor have, therefore, been bifurcated

and separated from that of its promoters /those

who are in management. Thus, the resolution

Company Appeal (AT) (Insolvency)No. 116 of 2019 4 process is not adversarial to the corporate debtor

but, in fact, protective of its interests. The

moratorium imposed by Section 14 is in the interest

of the corporate debtor itself, thereby preserving the

assets of the corporate debtor during the resolution

process. The timelines within which the resolution

process is to take place again protects the corporate

debtor's assets from further dilution, and also

protects all its creditors and workers by seeing that

the resolution process goes through as fast as

possible so that another management can, through

its entrepreneurial skills, resuscitate the corporate

debtor to achieve all these ends."

In 'Arcelormittal India Pvt. Ltd. vs. Satish Kumar

Gupta & Ors.' at paragraph 83, footnote 3 is

mentioned. The Hon'ble Supreme Court noticed

that:

"3. Regulation 32 of the Insolvency and

Bankruptcy Board of India (Liquidation Process)

Regulations, 2016, states that the liquidator may also

sell the corporate debtor as a going concern."

Company Appeal (AT) (Insolvency)No. 116 of 2019 5

6. In 'Meghal Homes Pvt. Ltd. vs. Shree

Niwas Girni K.K. Samiti & Ors. - (2007) 7 SCC

753" the Hon'ble Supreme Court observed and held

as follows:

"33. The argument that Section 391 would not

apply to a company which has already been ordered

to be wound up, cannot be accepted in view of the

language of Section 391(1) of the Act, which speaks of

a company which is being wound up. If we substitute

the definition in Section 390(a) of the Act, this would

mean a company liable to be wound up and which is

being wound up. It also does not appear to be

necessary to restrict the scope of that provision

considering the purpose for which it is enacted,

namely, the revival of a company including a company

that is liable to be wound up or is being wound up and

normally, the attempt must be to ensure that rather

than dissolving a company it is allowed to revive.

Moreover, Section 391(1)(b) gives a right to the

liquidator in the case of a company which is being

wound up, to propose a compromise or arrangement

with creditors and members indicating that the

provision would apply even in a case where an order

Company Appeal (AT) (Insolvency)No. 116 of 2019 6 of winding up has been made and a liquidator had

been appointed. Equally, it does not appear to be

necessary to go elaborately into the question whether

in the case of a company in liquidation, only the Official

Liquidator could propose a compromise or

arrangement with the creditors and members as

contemplated by Section 391 of the Act or any of the

contributories or creditors also can come forward with

such an application."

7. Section 391 of the Companies Act, 1956 has since

been replaced by Section 230 of the Companies Act,

2013, which is as follows:

"230. Power to compromise or make arrangements

with creditors and members

(1) Where a compromise or arrangement is proposed--

(a) between a company and its creditors or any class of

them; or

(b) between a company and its members or any class of

them,

the Tribunal may, on the application of the company

or of any creditor or member of the company, or in the

case of a company which is being wound up, of the

liquidator appointed under this Act or under the

Company Appeal (AT) (Insolvency)No. 116 of 2019 7 Insolvency and Bankruptcy Code, 2016 as the case

may be, order a meeting of the creditors or class of

creditors, or of the members or class of members, as

the case may be, to be called, held and conducted in

such manner as the Tribunal directs.

Explanation.-- For the purposes of this sub-

section, arrangement includes a reorganisation of the

company's share capital by the consolidation of

shares of different classes or by the division of

shares into shares of different classes, or by both of

those methods.

(2) The company or any other person, by whom an

application is made under subsection (1), shall disclose

to the by affidavit--

(a) all material facts relating to the company, such

as the latest financial position of the company, the

latest auditor's report on the accounts of the

company and the pendency of any investigation or

proceedings against the company;

(b) reduction of share capital of the company, if

any, included in the compromise or arrangement;

Company Appeal (AT) (Insolvency)No. 116 of 2019 8

(c) any scheme of corporate debt restructuring

consented to by not less than seventy-five per cent.

of the secured creditors in value, including--

(i) a creditor's responsibility statement in the

prescribed form;

(ii) safeguards for the protection of other secured

and unsecured creditors;

(iii) report by the auditor that the fund requirements

of the company after the corporate debt

restructuring as approved shall conform to the

liquidity test based upon the estimates provided to

them by the Board;

(iv) where the company proposes to adopt the

corporate debt restructuring guidelines specified by

the Reserve Bank of India, a statement to that effect;

and

(v) a valuation report in respect of the shares and

the property and all assets, tangible and intangible,

movable and immovable, of the company by a

registered valuer.

(3) Where a meeting is proposed to be called in

pursuance of an order of the Tribunal under sub-section

(1), a notice of such meeting shall be sent to all the

Company Appeal (AT) (Insolvency)No. 116 of 2019 9 creditors or class of creditors and to all the members or

class of members and the debenture-holders of the

company, individually at the address registered with

the company which shall be accompanied by a

statement disclosing the details of the compromise or

arrangement, a copy of the valuation report, if any, and

explaining their effect on creditors, key managerial

personnel, promoters and non-promoter members, and

the debenture-holders and the effect of the compromise

or arrangement on any material interests of the

directors of the company or the debenture trustees, and

such other matters as may be prescribed:

Provided that such notice and other documents shall

also be placed on the website of the company, if any, and

in case of a listed company, these documents shall be

sent to the Securities and Exchange Board and stock

exchange where the securities of the companies are

listed, for placing on their website and shall also be

published in newspapers in such manner as may be

prescribed:

Provided further that where the notice for the

meeting is also issued by way of an advertisement, it

shall indicate the time within which copies of the

Company Appeal (AT) (Insolvency)No. 116 of 2019 10 compromise or arrangement shall be made available to

the concerned persons free of charge from the registered

office of the company.

(4) A notice under sub-section (3)shall provide that the

persons to whom the notice is sent may vote in the

meeting either themselves or through proxies or by

postal ballot to the adoption of the compromise or

arrangement within one month from the date of receipt

of such notice:

Provided that any objection to the compromise or

arrangement shall be made only by persons holding

not less than ten per cent. of the shareholding or

having outstanding debt amounting to not less than

five per cent. of the total outstanding debt as per the

latest audited financial statement.

(5) A notice under sub-section (3) along with all the

documents in such form as may be prescribed shall

also be sent to the Central Government, the income-tax

authorities, the Reserve Bank of India, the Securities

and Exchange Board, the Registrar, the respective

stock exchanges, the Official Liquidator, the

Competition Commission of India established under

sub-section (1)of section 7 of the Competition Act, 2002,

Company Appeal (AT) (Insolvency)No. 116 of 2019 11 if necessary, and such other sectoral regulators or

authorities which are likely to be affected by the

compromise or arrangement and shall require that

representations, if any, to be made by them shall be

made within a period of thirty days from the date of

receipt of such notice, failing which, it shall be

presumed that they have no representations to make

on the proposals.

(6) Where, at a meeting held in pursuance of sub-

section (1), majority of persons representing three-

fourths in value of the creditors, or class of creditors

or members or class of members, as the case may be,

voting in person or by proxy or by postal ballot, agree

to any compromise or arrangement and if such

compromise or arrangement is sanctioned by the

Tribunal by an order, the same shall be binding on the

company, all the creditors, or class of creditors or

members or class of members, as the case may be, or,

in case of a company being wound up, on the

liquidator appointed under this Act or under the

Insolvency and Bankruptcy Code, 2016, as the case

may be, and the contributories of the company.

Company Appeal (AT) (Insolvency)No. 116 of 2019 12 (7) An order made by the Tribunal under sub-section

(6) shall provide for all or any of the following matters,

namely:--

(a) where the compromise or arrangement

provides for conversion of preference shares into equity

shares, such preference shareholders shall be given an

option to either obtain arrears of dividend in cash or

accept equity shares equal to the value of the dividend

payable;

(b) the protection of any class of creditors;

(c) if the compromise or arrangement results in the

variation of the shareholders' rights, it shall be given

effect to under the provisions of section 48;

(d) if the compromise or arrangement is agreed to by

the creditors under sub-section (6), any proceedings

pending before the Board for Industrial and Financial

Reconstruction established under section 4 of the Sick

Industrial Companies (Special Provisions) Act, 1985 shall

abate;

(e) such other matters including exit offer to dissenting

shareholders, if any, as are in the opinion of the Tribunal

necessary to effectively implement the terms of the

compromise or arrangement:

Company Appeal (AT) (Insolvency)No. 116 of 2019 13 Provided that no compromise or arrangement shall

be sanctioned by the Tribunal unless a certificate by the

company's auditor has been filed with the Tribunal to the

effect that the accounting treatment, if any, proposed in

the scheme of compromise or arrangement is in conformity

with the accounting standards prescribed under section

133.

(8) The order of the Tribunal shall be filed with the

Registrar by the company within a period of thirty days of

the receipt of the order.

(9) The Tribunal may dispense with calling of a

meeting of creditor or class of creditors where such

creditors or class of creditors, having at least ninety per

cent. value, agree and confirm, by way of affidavit, to the

scheme of compromise or arrangement.

(10) No compromise or arrangement in respect of any

buy-back of securities under this section shall be

sanctioned by the Tribunal unless such buy-back is in

accordance with the provisions of section 68.

(11) Any compromise or arrangement may include

takeover offer made in such manner as may be prescribed:

Provided that in case of listed companies, takeover offer

Company Appeal (AT) (Insolvency)No. 116 of 2019 14 shall be as per the regulations framed by the Securities

and Exchange Board.

(12) An aggrieved party may make an application to the

Tribunal in the event of any grievances with respect to the

takeover offer of companies other than listed companies in

such manner as may be prescribed and the Tribunal may,

on application, pass such order as it may deem fit.

Explanation.--For the removal of doubts, it is hereby

declared that the provisions of section 66 shall not apply

to the reduction of share capital effected in pursuance of

the order of the Tribunal under this section.

8. In view of the provision of Section 230 and the decision

of the Hon'ble Supreme Court in 'Meghal Homes Pvt. Ltd.'

and 'Swiss Ribbons Pvt. Ltd.', we direct the 'Liquidator' to

proceed in accordance with law. He will verify claims of all

the creditors; take into custody and control of all the assets,

property, effects and actionable claims of the 'corporate

debtor', carry on the business of the 'corporate debtor'

for its beneficial liquidation etc. as prescribed under

Section 35 of the I&B Code. The Liquidator will access

information under Section 33 and will consolidate the claim

under Section 38 and after verification of claim in terms of

Company Appeal (AT) (Insolvency)No. 116 of 2019 15 Section 39 will either admit or reject the claim, as required

under Section 40. Before taking steps to sell the assets of

the 'corporate debtor(s)' (companies herein), the Liquidator

will take steps in terms of Section 230 of the Companies

Act, 2013. The Adjudicating Authority, if so required, will

pass appropriate order. Only on failure of revival, the

Adjudicating Authority and the Liquidator will first proceed

with the sale of company's assets wholly and thereafter, if

not possible to sell the company in part and in accordance

with law."

13. Therefore, it is clear that during the liquidation

process, step required to be taken for its revival and

continuance of the 'Corporate Debtor' by protecting the

'Corporate Debtor' from its management and from a death

by liquidation. Thus, the steps which are required to be

taken are as follows:

i. By compromise or arrangement with the creditors, or

class of creditors or members or class of members in terms of

Section 230 of the Companies Act, 2013.

Company Appeal (AT) (Insolvency)No. 116 of 2019 16 ii. On failure, the liquidator is required to take step to sell

the business of the 'Corporate Debtor' as going concern in its

totality along with the employees.

14. The last stage will be death of the 'Corporate Debtor' by

liquidation, which should be avoided.

15. Learned counsel appearing on behalf of the Appellant

(Promoter) submitted that the provisions under Section 230 may not

be completed within 90 days, as observed in "S.C. Sekaran v. Amit

Gupta & Ors." (Supra).

16. It is further submitted that there will be objections by some of

the creditors or members who may not allow the Tribunal to pass

appropriate order under Section 230 of the Companies Act, 2013.

17. Normally, the total period for liquidation is to be completed

preferably within two years. Therefore, in "S.C. Sekaran v. Amit

Gupta & Ors." (Supra), this Appellate Tribunal allowed 90 days' time

to take steps under Section 230 of the Companies Act, 2013. In case,

for any reason the liquidation process under Section 230 takes more

time, it is open to the Adjudicating Authority (Tribunal) to extend the

period if there is a chance of approval of arrangement of the scheme.

18. During proceeding under Section 230, if any, objection is

raised, it is open to the Adjudicating Authority (National Company

Company Appeal (AT) (Insolvency)No. 116 of 2019 17 Law Tribunal) which has power to pass order under Section 230 to

overrule the objections, if the arrangement and scheme is beneficial

for revival of the 'Corporate Debtor' (Company). While passing such

order, the Adjudicating Authority is to play dual role, one as the

Adjudicating Authority in the matter of liquidation and other as a

Tribunal for passing order under Section 230 of the Companies Act,

2013. As the liquidation so taken up under the 'I&B Code', the

arrangement of scheme should be in consonance with the statement

and object of the 'I&B Code'. Meaning thereby, the scheme must

ensure maximisation of the assets of the 'Corporate Debtor' and

balance the stakeholders such as, the 'Financial Creditors',

'Operational Creditors', 'Secured Creditors' and 'Unsecured Creditors'

without any discrimination. Before approval of an arrangement or

Scheme, the Adjudicating Authority (National Company Law Tribunal)

should follow the same principle and should allow the 'Liquidator' to

constitute a 'Committee of Creditors' for its opinion to find out

whether the arrangement of Scheme is viable, feasible and having

appropriate financial matrix. It will be open for the Adjudicating

Authority as a Tribunal to approve the arrangement or Scheme in

spite of some irrelevant objections as may be raised by one or other

creditor or member keeping in mind the object of the Insolvency and

Bankruptcy Code, 2016.

Company Appeal (AT) (Insolvency)No. 116 of 2019 18

19. In view of the observations aforesaid, we hold that the liquidator is

required to act in terms of the aforesaid directions of the Appellate

Tribunal and take steps under Section 230 of the Companies Act. If

the members or the 'Corporate Debtor' or the 'creditors' or a class of

creditors like 'Financial Creditor' or 'Operational Creditor' approach the

company through the liquidator for compromise or arrangement by

making proposal of payment to all the creditor(s), the Liquidator on

behalf of the company will move an application under Section 230 of

the Companies Act, 2013 before the Adjudicating Authority i.e. National

Company Law Tribunal, Chennai Bench, in terms of the observations

as made in above. On failure, as observed above, steps should be taken

for outright sale of the 'Corporate Debtor' so as to enable the employees

to continue."

In view of the above, the Appellant being the Promoter may move before

the Liquidator, if he intends to file scheme in terms of section 230 of the

Companies Act, 2013.

Both the appeal stands disposed of with the aforesaid observation. No

costs.

[Justice S. J. Mukhopadhaya] Chairperson

[Kanthi Narahari] Member (Technical)

ss/sk Company Appeal (AT) (Insolvency)No. 116 of 2019 19