Harrish Khurana Liquidator Of Teil ... vs Engineers India Ltd. & Anr

(Arising out of Order dated 29th November, 2019 passed by the Adjudicating Authority (National Company Law Tribunal), New Delhi, Court-III in (IB) No. 1451(ND)2019)

IN THE MATTER OF:

Mr. Harrish Khurana, Liquidator of M/s. TEIL Projects Limited (In Voluntary Liquidation) Appellant

Versus

M/s. Engineers India Limited & Anr. Respondents

Present:

For Appellant: Mr. Harrish Khurana, Liquidator.

For Respondents: Mr. Anil Kaushik, Mr. Abhishek Mishra and Mr. Akash Bhardwaj, Advocates for R-1.

BANSI LAL BHAT, J.

The question for consideration in this appeal, as formulated on

16th January, 2020, is whether the provisions of Section 59 of the

Insolvency and Bankruptcy Code, 2016 ("I&B Code" for short) can be

made applicable under Voluntary Liquidation initiated pursuant to the

Companies Act, 1956 and the procedure to be followed and in such

case, whether the appeal under Section 42 of the 'I&B Code' is 2

maintainable before the Adjudicating Authority (National Company Law

Tribunal).

2. The Appellant- Mr. Harrish Khurana, Liquidator of 'M/s. TEIL

Projects Limited' has preferred the instant Appeal seeking setting aside

of impugned order dated 29th November, 2019 passed by the

Adjudicating Authority (National Company Law Tribunal), New Delhi,

Court-III in IB-1451(ND) 2019 with further direction to 'M/s. Engineers

India Limited' (Respondent No.1) to approach the Hon'ble High Court of

Delhi to claim the amount of Rs. 16,29,171/- which is not part of the

Declaration of Solvency.

3. The impugned order came to be passed by the Adjudicating

Authority in appeal under Section 42 of the 'I&B Code' which provides

remedy against the decision of the Liquidator. It appears that 'M/s.

TEIL Projects Limited' is undergoing Voluntary Liquidation Process. The

Liquidator rejected claim of the Respondent No.1 vide letter dated 14th

May, 2019 on the ground that the same was not part of the declaration

dated 13th June, 2016. On appeal, the Adjudicating Authority found

that the explanation by the Respondent No.1 in regard to non

submission of claim for Rs. 16,18,118/- was plausible as the amount

was due and payable which had been admitted by the Liquidator in its

letter of rejection, but that the Liquidator had improperly rejected the

same. The Liquidator was directed to admit the claim of the Respondent

No.1 as per Form B which has already been filed by the Respondent

Company Appeal (AT) (Insolvency) No. 58 of 2020 3

No.1. Consequently, the letter of rejection dated 14th May, 2019 was set

aside to the extent of the rejection of the claim of the Respondent No.1.

4. Heard learned counsel for the parties and perused the record.

5. The controversy involved at the bottom of this appeal is very

narrow and does not call for a very elaborate exercise as regards

consideration of the issue raised in this appeal. It is beyond controversy

that 'M/s. TEIL Projects Limited' is undergoing Voluntary Liquidation

Process contemplated under Chapter V of Part II of the 'I&B Code'. It is

indisputable that Section 59 of the 'I&B Code' incorporated in Chapter

V of Part II of the 'I&B Code' providing for 'Voluntary Liquidation of

Corporate Persons' stands duly notified vide S.O. 1005 (E) dated 30th

March, 2017 and has been enforced w.e.f. 1st April, 2017. The provision

is reproduced hereunder:

"59. Voluntary liquidation of corporate persons.-

(1) A corporate person who intends to liquidate itself

voluntarily and has not committed any default may

initiate voluntary liquidation proceedings under the

provisions of this Chapter.

(2) The voluntary liquidation of a corporate person under

sub-section (1) shall meet such conditions and

procedural requirements as may be specified by the

Board.

Company Appeal (AT) (Insolvency) No. 58 of 2020 4

(3) Without prejudice to sub-section (2), voluntary

liquidation proceedings of a corporate person registered

as a company shall meet the following conditions,

namely:--

(a) a declaration from majority of the directors of the

company verified by an affidavit stating that--

(i) they have made a full inquiry into the affairs

of the company and they have formed an opinion

that either the company has no debt or that it

will be able to pay its debts in full from the

proceeds of assets to be sold in the voluntary

liquidation; and

(ii) the company is not being liquidated to

defraud any person;

(b) the declaration under sub-clause (a) shall be

accompanied with the following documents,

namely:--

(i) audited financial statements and record of

business operations of the company for the

previous two years or for the period since its

incorporation, whichever is later;

(ii) a report of the valuation of the assets of the

company, if any prepared by a registered

valuer;

Company Appeal (AT) (Insolvency) No. 58 of 2020 5

(c) within four weeks of a declaration under sub-

clause (a), there shall be--

(i) a special resolution of the members of the

company in a general meeting requiring the

company to be liquidated voluntarily and

appointing an insolvency professional to act as

the liquidator; or

(ii) a resolution of the members of the company

in a general meeting requiring the company to

be liquidated voluntarily as a result of expiry of

the period of its duration, if any, fixed by its

articles or on the occurrence of any event in

respect of which the articles provide that the

company shall be dissolved, as the case may

be and appointing an insolvency professional

to act as the liquidator:

Provided that the company owes any debt to any

person, creditors representing two thirds in value of the

debt of the company shall approve the resolution

passed under sub-clause (c) within seven days of such

resolution.

(4) The company shall notify the Registrar of Companies

and the Board about the resolution under sub-section

(3) to liquidate the company within seven days of such

Company Appeal (AT) (Insolvency) No. 58 of 2020 6

resolution or the subsequent approval by the creditors,

as the case may be.

(5) Subject to approval of the creditors under sub-section

(3), the voluntary liquidation proceedings in respect of a

company shall be deemed to have commenced from the

date of passing of the resolution under sub-clause (c) of

sub-section (3).

(6) The provisions of sections 35 to 53 of Chapter III and

Chapter VII shall apply to voluntary liquidation

proceedings for corporate persons with such

modifications as may be necessary.

(7) Where the affairs of the corporate person have been

completely wound up, and its assets completely

liquidated, the liquidator shall make an application to

the Adjudicating Authority for the dissolution of such

corporate person.

(8) The Adjudicating Authority shall on an application

filed by the liquidator under sub-section (7), pass an

order that the corporate debtor shall be dissolved from

the date of that order and the corporate debtor shall be

dissolved accordingly.

(9) A copy of an order under sub-section (8) shall within

fourteen days from the date of such order, be forwarded

Company Appeal (AT) (Insolvency) No. 58 of 2020 7

to the authority with which the corporate person is

registered."

6. The conditions necessary for initiating a Voluntary Liquidation

Process, as enumerated in the aforesaid provision and coming to the

fore on a plain reading thereof, are that such Voluntary Liquidation can

be initiated by a Corporate Person which has not committed any default

and the conditions and procedural requirements as may be specified by

the Insolvency and Bankruptcy Board of India (hereinafter referred to as

"Board") are to be complied with. The provision further envisages a

declaration from majority of the Directors of the Company regarding

formation of an opinion that either the Company has no debt or that it

would be able to liquidate its liability from sale proceeds of its assets

with further requirements that the company is not being liquidated to

defraud any person. The declaration has to be followed by Special

Resolution within four weeks of such declaration passed in a general

meeting with a further rider that in the event of company owing any

debt to any person, creditors representing two thirds in value of the

debt of the Company shall approve such resolution within seven days of

passing of such resolution. It is significant to take note of sub-section

(6) of Section 59, which reads as under:

"59. Voluntary liquidation of corporate persons.-

....................(6) The provisions of sections 35 to 53 of

Company Appeal (AT) (Insolvency) No. 58 of 2020 8

Chapter III and Chapter VII shall apply to voluntary

liquidation proceedings for corporate persons with such

modifications as may be necessary."

7. The aforesaid provision leaves no room for doubt that Voluntary

Liquidation proceedings with necessary modifications shall, inter alia,

be governed by provisions of Sections 35 to 53 of Chapter III and

Chapter VII. The effect of application of such provisions is that

admission or rejection of claims falling within the ambit of Section 40 of

the 'I&B Code' lies within the domain of Liquidator and the decision of

Liquidator rejecting any claim is appealable before the Adjudicating

Authority. It is, therefore, futile on the part of the Appellant to contend

that the Adjudicating Authority has no jurisdiction to adjudicate upon

the claim of the Respondent No.1 in appeal.

8. As regards order dated 29th June, 2017 issued by the Ministry of

Corporate Affairs in the form of S.O. 2042 (E), be it seen that such order

has been issued to clarify the position and remove difficulties regarding

transfer of proceedings relating to those cases of voluntary winding-up

of a company where notice of the resolution by advertisement has been

given under sub-section (1) of Section 485 of the Companies Act, 1956

but the company has not been dissolved before the 1st April, 2017. The

order seeks to substitute the third proviso to Section 434(1) (c) of the

Companies Act, 2013 by providing that the proceedings relating to

Company Appeal (AT) (Insolvency) No. 58 of 2020 9

cases of voluntary winding up of a company where notice of the

resolution by advertisement has been given, but the company has not

been dissolved before the 1st April, 2017 shall continue to be dealt with

in accordance with provisions of the Companies Act, 1956 and the

Companies (Court) Rules, 1959. The order in question operates in a

different field and seeks to remove difficulties regarding transfer of

voluntary winding up proceedings of a company pending consideration.

The issue raised in this appeal is confined to legality of the impugned

order by virtue whereof letter of rejection of claim of the Respondent

No.1 has been set aside to the extent of rejection of such claim and

issue of transfer of a pending winding up proceedings is not at all the

subject of determination.

9. The initiation of process of voluntary liquidation of 'M/s. TEIL

Projects Limited' has not been called, in question, in this appeal. The

letter of rejection referred to hereinabove dated 14th May, 2019 has

admittedly been passed after notifying of Section 59 of the 'I&B Code'. It

is nobody's case that the winding up proceedings were pending before

the Hon'ble High Court. Therefore, it would be absurd to hold that the

Voluntary Liquidation Process initiated by 'M/s. TEIL Projects Limited'

is not governed by Section 59 (Chapter V of Part II of the 'I&B Code'). It

is significant to note that Section 2 of the 'I&B Code' clearly provides

that the 'I&B Code' shall apply to any company incorporated under the

Companies Act, 2013 or any previous company law, special Act, LLP Act

Company Appeal (AT) (Insolvency) No. 58 of 2020 10

and other specified corporate bodies as also individuals other than

personal guarantors, in relation to their insolvency, liquidation,

voluntary liquidation or bankruptcy, as the case may be. It goes without

saying that under Section 238 of the 'I&B Code, the provisions of the

'I&B Code' override other laws. Thus, there being specific provision in

the 'I&B Code' dealing with admission or rejection of claim by the

Liquidator with mechanism provided for questioning the same in appeal

before the Adjudicating Authority and such provision being made

applicable to voluntary liquidation proceedings explicitly in terms of the

provisions embodied in Section 59(6) of the 'I&B Code', issue raised with

regard to maintainability of the appeal and jurisdiction of the

Adjudicating Authority are without substance and arguments raised on

this score are repelled.

10. On careful consideration of the issue raised in this appeal, we are

of the considered opinion that the jurisdiction exercised by the

Adjudicating Authority is vested in it and cannot be termed improper.

Despite being of the view that the claim initially left out by the

Respondent No.1 was payable, the Liquidator proceeded to reject the

same without any justifiable reason which cannot be supported.

11. In so far as objection raised with regard to maintainability of this

appeal is concerned, be it noticed that Section 61 providing for remedy

of appeal specifically speaks of appeal by any person aggrieved by the

order of the Adjudicating Authority under Part II being maintainable

Company Appeal (AT) (Insolvency) No. 58 of 2020 11

before this Appellate Tribunal. It goes without saying that Section 40

governing admission or rejection of claims by the Liquidator as also

Section 42 governing appeal against the decision of Liquidator accepting

or rejecting the claims as also voluntary liquidation of corporate persons

governed by Section 59 of the 'I&B Code' are incorporated in Part II of

the 'I&B Code', Thus viewed, the appeal under Section 42 before the

Liquidator as also the instant appeal before this Appellate Tribunal are

maintainable.

12. In view of the foregoing conclusion, we find no merit in this

appeal. The appeal being devoid of merit is dismissed. No costs.

[Justice Bansi Lal Bhat] Member (Judicial)

[V.P. Singh] Member (Technical)

[Shreesha Merla] Member (Technical)

NEW DELHI 22nd May, 2020

AR

Company Appeal (AT) (Insolvency) No. 58 of 2020