Concept Management Consulting Ltd vs Anand Chandra Swain & Anr

IN THE MATTER OF: Concept Management Consulting Ltd. .....Appellant Vs. Anand Chandra Swain & Anr. ......Respondents

Present : For Appellant: Mr. K.K. Putra with Mr. Abhishek Singh, Advocates

For Respondents: Mr. Anand Chandra, Advocate for R-1

22.05.2019 - The Appellant has challenged the orders dated 8th January,

2019 and 23rd January, 2019 passed by the Adjudicating Authority (National

Company Law Tribunal) ('NCLT') Kolkata Bench, Kolkata. By the order dated 8th

January, 2019, the Adjudicating Authority appointed by order of liquidation,

Shri Kailash Kumar Rathi, as liquidator with certain directions.

2. By other order dated 23rd January, 2019, Mr. Kailash Kumar Rathi having

shown his unwillingness to act as liquidator, one Mr. Chaitanya Kumar Ray has

been appointed as liquidator.

3. Learned Counsel appearing on behalf of the Appellant submits that the

Appellant is a 'Financial Creditor' and filed claim before the Interim Resolution Professional but the claim was not admitted. Allegations have been made against

erstwhile Interim Resolution Professional on the ground that he had not followed

the procedure which resulted in liquidation. However, in the absence of the

individual Interim Resolution Professional, we are not inclined to make any

observation.

4. Admittedly, the Appellant has not filed any application u/s 60(5) against

decision of the Interim Resolution Professional that he had not admitted the

claim. Therefore, at the stage of liquidation he cannot raise all these claims.

5. During the liquidation, the liquidator is required to verify all the claims of

the Creditor in terms of Section 35(1)(a) of the Insolvency & Bankruptcy Code,

2016 ('I&B' Code, for short). Thereafter he is required to access information u/s

37 and consolidate the claims u/s 38. After verification of the claim u/s 39 the

liquidator is required to admit the claim or reject the claim u/s 40.

6. The power of the liquidator is like a quasi-judicial authority is required to

record the decision, if claim is not accepted or rejected. In such case, the

liquidator is required to communicate the decision of 'admission' or rejection of

the Creditor. The Creditor, if aggrieved, is invited to file appeal against the

decision of liquidation before Adjudicating Authority u/s 42 of the of the

Insolvency & Bankruptcy Code, 2016 ('I&B' Code, for short). There being a

specific procedure laid down under the I&B Code, it is open to the Appellant to

file the claim and the liquidator is required to consider the same in accordance

with law, as discussed above.

Company Appeal (AT) (Insolvency)No.392-393 of 2019 2

7. If any scheme is preferred by the Appellant within 15 days, the liquidator

will consider the same in accordance with the aforesaid provision and

communicate the decision in terms of Section 40(2) of I & B Code, uninfluenced

by the decision taken by the Interim Resolution Professional.

8. We have noticed that the 'Resolution Professional' is no more functioning

and another person is appointed as liquidator. Therefore, there is no question of

bias with the present liquidator.

The Appellate Tribunal also noticed the steps required to be taken by

liquidator in the case of Company Appeal (AT) (Insolvency) No. 224 of 2018 in Y.

Shivram Prasad Vs. S. Dhanapal & Ors. held and directed as follows:-

"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. -

Company Appeal (AT) (Insolvency)No.392-393 of 2019 3 Writ Petition (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 process is not adversarial to the

Company Appeal (AT) (Insolvency)No.392-393 of 2019 4 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.392-393 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

Company Appeal (AT) (Insolvency)No.392-393 of 2019 6 case where an order 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

Company Appeal (AT) (Insolvency)No.392-393 of 2019 7 appointed under this Act or under the 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.392-393 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.392-393 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

compromise or arrangement shall be made available to

Company Appeal (AT) (Insolvency)No.392-393 of 2019 10 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, if necessary, and such other sectoral regulators

or authorities which are likely to be affected by the

Company Appeal (AT) (Insolvency)No.392-393 of 2019 11 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.

(7) An order made by the Tribunal under sub-

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

matters, namely:--

Company Appeal (AT) (Insolvency)No.392-393 of 2019 12

(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:

Provided that no compromise or arrangement

shall be sanctioned by the Tribunal unless a

certificate by the company's auditor has been filed

Company Appeal (AT) (Insolvency)No.392-393 of 2019 13 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 shall be as per the regulations framed

by the Securities and Exchange Board.

Company Appeal (AT) (Insolvency)No.392-393 of 2019 14 (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 Section 39 will either admit or reject the claim,

as required under Section 40. Before taking steps to sell the

Company Appeal (AT) (Insolvency)No.392-393 of 2019 15 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.

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.

Company Appeal (AT) (Insolvency)No.392-393 of 2019 16

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

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

Company Appeal (AT) (Insolvency)No.392-393 of 2019 17 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.

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 Company Appeal (AT) (Insolvency)No.392-393 of 2019 18 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."

The appeal is disposed of with the aforesaid observations and directions.

No costs.

[Justice S. J. Mukhopadhaya] Chairperson

[Justice A. I. S. Cheema] Member (Judicial)

[Kanthi Narahari] Member (Technical)

ss/gc

Company Appeal (AT) (Insolvency)No.392-393 of 2019 19