Mahesh Kumar Panwar vs Abhishek Anand

IN THE MATTER OF: Mahesh Kumar Panwar .....Appellant Vs. Neelam Singh & Anr. ......Respondents Present :

For Appellant: Mr. Arun Khatri, Mr. Sushant Chauhan, Mr. Pardeep Malik, Advocates For Respondents: Mr. Rahul Shukla, Advocate

With

Company Appeal (AT) (Insolvency)No. 117 of 2018

IN THE MATTER OF: Mahesh Kumar Panwar .....Appellant Vs. Abhishek Anand ......Respondent

Present :

For Respondents: Mr. Rahul Shukla, Advocate

Company Appeal (AT) (Insolvency)No. 185 of 2017

27.08.2019 - The Appellant - Mahesh Kumar Panwar, Shareholder /

Promoter/ Director of 'Megha Software Infrastructure Pvt. Ltd.' - ('Corporate

Debtor') preferred the Company Appeal (AT) (Insolvency)No. 185 of 2017 against

the order dated 23rd August, 2017 passed by the Adjudicating Authority

('National Company Law Tribunal') New Delhi Bench - I admitting the application

preferred by 1st Respondent - Neelam Singh (allottee - 'Financial Creditor').

2. The main plea taken by the Appellant was that the 1st Respondent /

allottee of a flat does not come within the meaning of 'Financial Creditor' as

defined u/s 5(7) read with Section 5(8) of the 'I&B' Code. However, such

submission cannot be accepted in view of decision of this Appellate Tribunal in

Company Appeal (AT)(Insolvency) No. 07 of 2017 in "Nikhil Mehta and Sons

Vs. AMR Infrastructure Ltd." and the explanation below 5(8), wherein it is made

clear that the allottee of flat comes within the meaning of 'Financial creditor'

3. It was next submitted that the Respondent made Agreements on 6th

October, 2008, 10th November, 2008 followed by Agreement reached on 26th

June, 2014 and out of them the Agreement dated 26.06.2014 was obtained by

fraud. However, such plea has not been based on the evidence, we are not

inclined to accept such plea further.

Company Appeal (AT) (Insolvency)No. 185 of 2017 2 In the meantime, more than 270 days have passed and in absence of any

valid Resolution Plan, order of liquidation has been passed on 28.02.2018. We

are not inclined to interfere with the impugned order dated 23rd August, 2017.

4. In the other appeal Company Appeal (AT) (Insolvency)No. 117 of 2018, the

same Appellant has challenged the order of liquidation dated 28.02.2018.

5. Learned counsel for the Appellant submitted that the Appellant / Promoter

intended to settle the matter and Arrangement / Scheme in terms of Section 230

of the Companies Act, 2013. However, the Liquidator is not accepting the same

nor decided the claim of each of the creditors. However, that cannot be a ground

to interfere with the order of liquidation passed on 28.02.2018.

7. Similar issue fell for consideration before this Appellate Tribunal Y. Shivram

Prasad Vs. S. Dhanapal & Ors., wherein this Appellate Tribunal 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)

Company Appeal (AT) (Insolvency)No. 185 of 2017 3 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:

"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 Company Appeal (AT) (Insolvency)No. 185 of 2017 4 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

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."

Company Appeal (AT) (Insolvency)No. 185 of 2017 5 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 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

Company Appeal (AT) (Insolvency)No. 185 of 2017 6 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."

7. Section 391 of the Companies Act, 1956 has

since been replaced by Section 230 of the

Companies Act, 2013, which is as follows:

Company Appeal (AT) (Insolvency)No. 185 of 2017 7 "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.

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

Company Appeal (AT) (Insolvency)No. 185 of 2017 8 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. 185 of 2017 9

(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

Company Appeal (AT) (Insolvency)No. 185 of 2017 10 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

Company Appeal (AT) (Insolvency)No. 185 of 2017 11 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:

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

Company Appeal (AT) (Insolvency)No. 185 of 2017 12 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 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

Company Appeal (AT) (Insolvency)No. 185 of 2017 13 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;

(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

Company Appeal (AT) (Insolvency)No. 185 of 2017 14 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.

(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

Company Appeal (AT) (Insolvency)No. 185 of 2017 15 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

Company Appeal (AT) (Insolvency)No. 185 of 2017 16 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

Company Appeal (AT) (Insolvency)No. 185 of 2017 17 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

Company Appeal (AT) (Insolvency)No. 185 of 2017 18 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. 185 of 2017 19

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

Company Appeal (AT) (Insolvency)No. 185 of 2017 20 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

Company Appeal (AT) (Insolvency)No. 185 of 2017 21 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 the observations as made in

above. On failure, as observed above,

steps should be taken for outright sale of

Company Appeal (AT) (Insolvency)No. 185 of 2017 22 the 'Corporate Debtor' so as to enable the

employees to continue."

8. In view of the aforesaid position as explained by this Appellate

Tribunal, we direct the Liquidator to follow the provisions of Sections 35,37,38,

39 and 40 of the 'I&B' Code and decide the claim. Thereafter, it will ensure that

instead of liquidating the assets of the 'Corporate Debtor' steps are taken for

Arrangement / Scheme to frame u/s 230 of the Companies Act, 2013. If

Promoters / Members of the 'Corporate Debtors' including the Appellant give

any proposal for entering into an Agreement or Scheme in terms of Section 230

of the Companies Act, 2013 or any other Creditors, the liquidator is required to

act in accordance with the directions of this Appellate Tribunal in Y. Shivram

Prasad Vs. S. Dhanapal & Ors. Supra .

9. The Liquidator in the meantime will also ensure that the 'Corporate Debtor'

remains a going concern and the work do not suffer. It will make payment of salary

and wages to the officers, employees and workmen of the 'Corporate Debtor' and

also to the suppliers of goods, services, electricity charges, water charges etc.

10. It is informed that the Bank Guarantee for Rs. 1 crore has been deposited by

the Appellant - Mahesh Kumar Panwar with the Registrar, NCLAT pursuant to

direction of Hon. Supreme Court dated 4th May, 2018 passed in civil appeal no.

4300/2018 (Mahesh Kumar Panwar) Vs. Abhishek Anand & Anr.) etc. In such

Company Appeal (AT) (Insolvency)No. 185 of 2017 23 case, the Registrar, NCLAT will hand over the Bank Guarantee to Mr. Mahesh

Kumar Panwar if identified by his Counsel and obtain his signature.

The appeal stands disposed of with aforesaid observations and directions.

No costs.

[Justice S. J. Mukhopadhaya] Chairperson

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

[Kanthi Narahari] Member (Technical)

ss/sk

Company Appeal (AT) (Insolvency)No. 185 of 2017 24