Manoj Kunwar vs Oriental Bank Of Commerce & Ors

NATIONAL COMPANY LAW APPELLATE TRIBUNAL, NEW DELHI Company Appeal(AT) (Insolvency) No. 947 of 2019 IN THE MATTER OF: Mr. Manoj Kunwar Promoter and Ex-Director M/s SSMP Industries Ltd. K336, Sarita Vihar, New Delhi. ...Appellant Vs 1. Oriental Bank of Commerce M-1,2,3, M Block, Connaught Circus, New Delhi- 110 001

2. M/s Impex Services India Pvt. Ltd. Flat No. 402, Pragati House, 4th Floor, 47-48, Nehru Place, New Delhi

3. Mr. Yogesh Sethi, Liquidator for M/s SSMP Industries Ltd., K-336, Sarita Vihar, New Delhi- 110 076. ....Respondents Present: For Appellant: Mr. V. Dcosta, Advocate

For Respondents: Mr. P.B.A. Srinivasan, Mr. Avinash Mohapatra and Ms. Ichchha, Advocates for Respondent No. 3.

ORDER

06.02.2020 This Appeal has been filed by the Promotor/Executive Director

of the Corporate Debtor - M/s SSMP Industries Ltd. The Appeal was filed against

the order of liquidation passed by the Adjudicating Authority (National Company

Law Tribunal, Bench-III, New Delhi on 31.07.2019.

2. Learned Counsel for the Appellant submits that the liquidation value of

the Company is Rs. 1.5 Crores but the Corporate Debtor, being Micro, Small and

Medium Enterprises (in short 'MSME'), the Appellant made efforts and has

offered the Respondent- Oriental Bank of Commerce Rs. 8.5 Crores to settle the

Company Appeal(AT)(Insolvency) No. 947 of 2019 Page 1 of 18 dues of the Corporate Debtor but in spite of receiving 5% of the amount to show

bonafide, later on Respondent No. 1, without assigning any reason, simply

rejected One Time Settlement ("in short 'OTS') proposal. A copy of the said letter

dated 03.02.2020 is tendered at Bar. The said letter is marked as 'X' for

identification.

3. Learned Counsel for the Appellant as well as Respondent No. 1 and learned

Counsel for Respondent No. 3-Liquidator accept that the dues of Oriental Bank

of Commerce are to the extent of 99.4% and rest are the dues of others.

4. Learned Counsel for the Respondent No. 1 submits that dues of the Bank

are about Rs. 16 Crores and the Bank is not accepting the OTS proposal because

the Bank has hope from the Securities available to recover the dues.

5. Having heard learned Counsel for both the sides, we find that interference

in Impugned Order is not called for but the Appeal deserves to be disposed of

with directions as were given in the matter of "Y. Shivram Prasad Vs. S.

Dhanapal & Ors." in Company Appeal(AT)(Insolvency) No. 224 of 2018 of this

Tribunal so that the Liquidator can take steps under Section 230 of the

Companies Act, 2013 read with the provision of IBC.

In that judgment, this Tribunal had observed as under:

"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.

Company Appeal(AT)(Insolvency) No. 947 of 2019 Page 2 of 18 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:

"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

Company Appeal(AT)(Insolvency) No. 947 of 2019 Page 3 of 18 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) Regulations, 2016, states that the

liquidator may also sell the corporate debtor as

a going concern."

Company Appeal(AT)(Insolvency) No. 947 of 2019 Page 4 of 18

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 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

Company Appeal(AT)(Insolvency) No. 947 of 2019 Page 5 of 18 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 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. 947 of 2019 Page 6 of 18

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;

(iii) report by the auditor that the fund requirements of

the company after the corporate debt restructuring as

Company Appeal(AT)(Insolvency) No. 947 of 2019 Page 7 of 18 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 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

Company Appeal(AT)(Insolvency) No. 947 of 2019 Page 8 of 18 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 14 Company Appeal (AT)

(Insolvency) Nos. 224 & 286 of 2018 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:

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

Company Appeal(AT)(Insolvency) No. 947 of 2019 Page 9 of 18 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 in value of the creditors, or class of

creditors or members or class of members, as the

Company Appeal(AT)(Insolvency) No. 947 of 2019 Page 10 of 18 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

subsection (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

Company Appeal(AT)(Insolvency) No. 947 of 2019 Page 11 of 18 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. 947 of 2019 Page 12 of 18 (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

Company Appeal(AT)(Insolvency) No. 947 of 2019 Page 13 of 18 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 '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

Company Appeal(AT)(Insolvency) No. 947 of 2019 Page 14 of 18 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.

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

Company Appeal(AT)(Insolvency) No. 947 of 2019 Page 15 of 18 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 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

Company Appeal(AT)(Insolvency) No. 947 of 2019 Page 16 of 18 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 for compromise or arrangement by

making proposal of payment to all the creditor(s), the

Company Appeal(AT)(Insolvency) No. 947 of 2019 Page 17 of 18 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."

6. We dispose the present Appeal in terms of the above directions as noticed

in the matter of "Y. Shivram Prasad Vs. S. Dhanapal & Ors." in Company

Appeal(AT)(Insolvency) No. 224 of 2018 of this Tribunal. Parties to act

accordingly.

Ordered accordingly. The Liquidator to take necessary steps keeping in

view of the above Judgment.

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

[Justice Anant Bijay Singh] Member (Judicial)

(Kanthi Narahari) Member(Technical) Akc/Md

Company Appeal(AT)(Insolvency) No. 947 of 2019 Page 18 of 18