M.Palanisamy vs Senthil Papers And Boards Pvt. Ltd. & Ors

IN THE MATTER OF: M. Palanisamy .....Appellant Vs. M/s. Senthil Papers and Boards Pvt. Ltd. & Ors. ......Respondents

Present : For Appellant: Mr. Abhijeet Sinha with Mr. Saikat Sarkar, Mr. M.Roshan Atia, Mr. Rohit Rajershi, Advocates

03.05.2019 - This appeal has been preferred by M. Palanisamy who is Director

/ Shareholder of M/s. Senthil Papers and Boards Pvt. Ltd. against order dated

12th February, 2019 whereby the application under Section 60(5)of Insolvency &

Bankruptcy Code ('I&B') Code, 2016 filed by Appellant has been rejected on the

ground that the Appellant is ineligible in terms of Section 29A (c) & (h) of the

Code.

When the matter was taken up, learned Counsel for the Appellant

submitted that the Adjudicating Authority in the meantime has also passed the

order of liquidation on the same day i.e. 12th February, 2019 which the Appellant

could come to know later on.

Company Appeal (AT) (Insolvency) No. 482 of 2019 In the fact and circumstances, we are not inclined to grant any relief

in this appeal nor intend to express any opinion with regard to delay in

preferring the appeal. However, we are of the view that liquidator is required

to act in accordance with decision of this Appellate Tribunal passed in

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

Shivram Prasad Vs. S. Dhanapal & Ors. dated 27.2.2019 wherein this

Appellate Tribunal observed 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. - Writ Petition (Civil) No. 99 of 2018' by its

judgment dated 25th January, 2019, observed as follows:

COMPANY APPEAL (AT) (INSOLVENCY) NO.482 OF 2018 ADMIN 2 "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 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

COMPANY APPEAL (AT) (INSOLVENCY) NO.482 OF 2018 ADMIN 3 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."

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

COMPANY APPEAL (AT) (INSOLVENCY) NO.482 OF 2018 ADMIN 4 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 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."

COMPANY APPEAL (AT) (INSOLVENCY) NO.482 OF 2018 ADMIN 5

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

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.

COMPANY APPEAL (AT) (INSOLVENCY) NO.482 OF 2018 ADMIN 6 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;

(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;

COMPANY APPEAL (AT) (INSOLVENCY) NO.482 OF 2018 ADMIN 7

(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 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

COMPANY APPEAL (AT) (INSOLVENCY) NO.482 OF 2018 ADMIN 8 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 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:

COMPANY APPEAL (AT) (INSOLVENCY) NO.482 OF 2018 ADMIN 9 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 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

COMPANY APPEAL (AT) (INSOLVENCY) NO.482 OF 2018 ADMIN 10 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:--

(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;

COMPANY APPEAL (AT) (INSOLVENCY) NO.482 OF 2018 ADMIN 11

(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 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.

COMPANY APPEAL (AT) (INSOLVENCY) NO.482 OF 2018 ADMIN 12 (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 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.

COMPANY APPEAL (AT) (INSOLVENCY) NO.482 OF 2018 ADMIN 13

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 '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."

COMPANY APPEAL (AT) (INSOLVENCY) NO.482 OF 2018 ADMIN 14

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.

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.

COMPANY APPEAL (AT) (INSOLVENCY) NO.482 OF 2018 ADMIN 15

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 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', COMPANY APPEAL (AT) (INSOLVENCY) NO.482 OF 2018 ADMIN 16 '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 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 COMPANY APPEAL (AT) (INSOLVENCY) NO.482 OF 2018 ADMIN 17 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 stands disposed of with the aforesaid observation and

directions.

[Justice S. J. Mukhopadhaya] Chairperson

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

[Kanthi Narahari] Member (Technical)

ss/gc

COMPANY APPEAL (AT) (INSOLVENCY) NO.482 OF 2018 ADMIN 18