Lal Mohammad & Ors vs Su Kam Power System Ltd & Ors

Lal Mohammad & Ors. ...Appellants

Versus

M/s. SU KAM Power System Ltd. Anr. ...Respondents

For Appellant: Attendance not marked

For Respondent: Mr. Siddhant Kant, for Liquidator

ORDER

29.04.2019 - Pursuant to application u/s 7 of Insolvency & Bankruptcy Code

('I&B' Code), 2016 the 'Corporate Insolvency Resolution Process was initiated on 5th

April, 2018 against 'M/s SU KAM Power System Ltd.' ('Corporate Debtor').

Subsequently, in the absence of any approved 'Resolution Plan' and as 270 days

was to complete, an application u/s 33(1) was filed before the Adjudicating

Authority (National Company Law Tribunal), Principal Bench, New Delhi in which

order of liquidation was passed by Impugned order dated 3rd April, 2019.

Learned counsel appearing on behalf of Appellant submitted that the

'Corporate Insolvency Resolution Process' was not completed in the manner as it should have been completed and in fact no proper steps were taken to

ensure that Resolution process is made successful.

Mr. Siddhant Kant appearing on behalf of Liquidator is disputing the

aforesaid claim and submitted that in absence of proper plan the Resolution

Professional had to file an application u/s 33(1)(iv) of the Insolvency &

Bankruptcy Code ('I&B' Code), 2016 in the present.

We find that no Resolution Plan was approved by the Committee of

Creditors and 270 days have passed. We are not inclined to interfere with

the order of liquidation. However, we are of the view that liquidator needs

to act in terms of this Appellate Tribunal's order passed on 27th February,

2019 in Company Appeal (AT) (Insolvency) No. 224 of 2018 in Y.

Shivram Prasad Vs. S. Dhanapal & Ors. the observations and directions

of which are 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:

Company Appeal (AT)(Ins) No. 451 of 2019 2

"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 (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

Company Appeal (AT)(Ins) No. 451 of 2019 3 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 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)

Company Appeal (AT)(Ins) No. 451 of 2019 4 Regulations, 2016, states that the liquidator

may also sell the corporate debtor as a going

concern."

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

Company Appeal (AT)(Ins) No. 451 of 2019 5 arrangement with creditors and members indicating

that the provision would apply even in a 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

Company Appeal (AT)(Ins) No. 451 of 2019 6 a company which is being wound up, of the liquidator

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)(Ins) No. 451 of 2019 7

(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 creditors or

Company Appeal (AT)(Ins) No. 451 of 2019 8 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)(Ins) No. 451 of 2019 9 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)(Ins) No. 451 of 2019 10 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)(Ins) No. 451 of 2019 11

(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 with the

Company Appeal (AT)(Ins) No. 451 of 2019 12 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.

(12) An aggrieved party may make an application

to the Tribunal in the event of any grievances with

Company Appeal (AT)(Ins) No. 451 of 2019 13 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 assets of the

Company Appeal (AT)(Ins) No. 451 of 2019 14 '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)(Ins) No. 451 of 2019 15

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

Company Appeal (AT)(Ins) No. 451 of 2019 16 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)(Ins) No. 451 of 2019 17

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."

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

[Justice S.J. Mukhopadhaya] Chairperson

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

[Kanthi Narahari] Member (Technical)

ss/gc/

Company Appeal (AT)(Ins) No. 451 of 2019 18