R. Vijay Kumar & Anr vs Kasi Viswanathan & Anr

NATIONAL COMPANY LAW APPELLATE TRIBUNAL NEW DELHI Company Appeal (AT) (Insolvency) No. 340 of 2019

IN THE MATTER OF:

R. Vijay Kumar & Anr. ...Appellants

Versus

Kasi Viswanathan & Anr. ...Respondents

Present: For Appellants : Mr. Chandra Bhushan Prasad and Ms. Indra Bhushan Prasad, Advocates

ORDER

05.04.2019 The 'Resolution Process' having failed, the 'Resolution

Professional' filed an application under Section 33 of the 'Insolvency and

Bankruptcy Code, 2016' ('I&B' for short) before the Adjudicating Authority

(National Company Law Tribunal), Single Bench, Chennai, who passed the

impugned order of liquidation dated 26th February, 2019.

2. Learned counsel for the appellants, who are the Directors of 'M/s. Gemini

Communication Limited'- ('Corporate Debtor') submitted that the liquidation

value of the property of the 'corporate debtor' is Rs.3 Crores whereas the

'Promoters' are willing to pay a sum of Rs.30 Crores. However, such submission

cannot be accepted in view of their non-entitlement under Section 29A of the

I&B Code.

3. For the reasons aforesaid, we are not inclined to interfere with the

impugned order dated 28th February, 2019.

4. However, as order of 'Liquidation' has been passed by the Adjudicating

Authority, we direct the 'Liquidator' to act in terms with the decision of 'Y.

Shivram Prasad vs. S. Dhanapal & Ors.' in 'Company Appeal (AT) 2

(Insolvency) No. 224 of 2018 etc.' wherein this Appellate Tribunal vide order

dated 27th February, 2019 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:

"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

Company Appeal (AT) (Insolvency) No. 340 of 2019 3

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 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

Company Appeal (AT) (Insolvency) No. 340 of 2019 4

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

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

Company Appeal (AT) (Insolvency) No. 340 of 2019 5

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:

"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

Company Appeal (AT) (Insolvency) No. 340 of 2019 6

(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 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;

Company Appeal (AT) (Insolvency) No. 340 of 2019 7

(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 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

Company Appeal (AT) (Insolvency) No. 340 of 2019 8

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 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

Company Appeal (AT) (Insolvency) No. 340 of 2019 9

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

Liquidator, the Competition Commission of India

established under sub-section (1)of section 7 of the

Competition Act, 2002, if necessary, and such other

Company Appeal (AT) (Insolvency) No. 340 of 2019 10

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 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) (Insolvency) No. 340 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 Tribunal to the effect that the accounting

treatment, if any, proposed in the scheme of

Company Appeal (AT) (Insolvency) No. 340 of 2019 12

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

respect to the takeover offer of companies other than

listed companies in such manner as may be

Company Appeal (AT) (Insolvency) No. 340 of 2019 13

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 'corporate debtor(s)' (companies herein), the

Liquidator will take steps in terms of Section 230 of

the Companies Act, 2013. The Adjudicating

Company Appeal (AT) (Insolvency) No. 340 of 2019 14

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.

15. Learned counsel appearing on behalf of the

Appellant (Promoter) submitted that the provisions

under Section 230 may not be completed within 90

Company Appeal (AT) (Insolvency) No. 340 of 2019 15

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

Adjudicating Authority is to play dual role, one as

Company Appeal (AT) (Insolvency) No. 340 of 2019 16

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) (Insolvency) No. 340 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."

5. The appeal stands disposed of with aforesaid observations and directions.

No costs.

[Justice S.J. Mukhopadhaya] Chairperson

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

Company Appeal (AT) (Insolvency) No. 340 of 2019