Rajnish Gupta vs Small Industries Development, Bank Of ...

Present: For Appellant : Mr. Krishnendu Dutta and Mr. P. Chaitanyashil, Advocates Mr. Mukesh Gupta, Chartered Accountant

For 1st Respondent: Mr. Alok Dhir, Mr. Karan Batura and Ms. Mallika Chadha, Advocates

For 2nd Respondent : Mr. G. P. Madaan and Ms. Pooja Singh, Advocates

ORDER

05.09.2019 Learned counsel for the Appellant (Promoter) preferred this

appeal against order dated 24th April, 2019 passed by the Adjudicating Authority

(National Company law Tribunal), New Delhi Bench. From the said order, it is

clear that the Resolution Professional brought to the notice of the Adjudicating

Authority that the 'Committee of Creditors' has not accepted the offer as it was

contrary to the amended Notification issued by the Ministry of Finance.

On hearing the learned counsel for the parties, the order of 'Liquidation'

has already been passed on 31st May, 2019, which is not under challenge. In

the circumstances, no relief can be granted against the order dated 24th April,

2019. However, we make it clear that the 'Liquidator' is required to follow the

procedure as laid down and directed by this Appellate Tribunal in 'Y. Shivram

[Type here] 2

vs. S. Dhanapal & Ors.' in 'Company Appeal (AT) (Insolvency) No. 224 of 2018'

vide order dated 27th February, 2019 observed and held 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. 628 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 management can, through

Company Appeal (AT) (Insolvency) No. 628 of 2019 4

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

Company Appeal (AT) (Insolvency) No. 628 of 2019 5

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. 628 of 2019 6

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.

Explanation.-- For the purposes of this

sub-section, arrangement includes a

Company Appeal (AT) (Insolvency) No. 628 of 2019 7

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. 628 of 2019 8

(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,

Company Appeal (AT) (Insolvency) No. 628 of 2019 9

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 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

Company Appeal (AT) (Insolvency) No. 628 of 2019 10

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 compromise or

arrangement and shall require that

Company Appeal (AT) (Insolvency) No. 628 of 2019 11

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. 628 of 2019 12

(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:

Company Appeal (AT) (Insolvency) No. 628 of 2019 13

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

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

Company Appeal (AT) (Insolvency) No. 628 of 2019 14

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.

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

Company Appeal (AT) (Insolvency) No. 628 of 2019 15

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."

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:

Company Appeal (AT) (Insolvency) No. 628 of 2019 16

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.

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,

Company Appeal (AT) (Insolvency) No. 628 of 2019 17

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', 'Operational Creditors',

'Secured Creditors' and 'Unsecured Creditors'

Company Appeal (AT) (Insolvency) No. 628 of 2019 18

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

Company Appeal (AT) (Insolvency) No. 628 of 2019 19

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 Appellant, member of the 'Corporate Debtor', may approach the

'Liquidator' in terms of Section 230 of the Companies Act, 2013 for making

Arrangement and Scheme by liquidating the outstanding dues. In such case,

the 'Liquidator' will consider the same in accordance with the guidelines laid

down by this Appellate Tribunal in 'Y. Shivram vs. S. Dhanapal & Ors.' in

'Company Appeal (AT) (Insolvency) No. 224 of 2018' after calling for such

schemes offered by creditors/class of creditors (Committee of Creditors).

The appeal stands disposed of with aforesaid observations. No costs.

[Justice S.J. Mukhopadhaya] Chairperson

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

[ Kanthi Narahari ] Member (Technical) /ns/gc

Company Appeal (AT) (Insolvency) No. 628 of 2019