Ram Niwas Basia & Ors vs Vijender Sharma, R.P. Of Global ...

IN THE MATTER OF: Ram Niwas Basia & Ors. .....Appellants Vs. Vijender Sharma, R.P. of Global Houseware Ltd. ......Respondents

Present : For Appellant: Mr. Rishi Kapoor with Mr. Satish Rai, Advocates

For Respondents: Mr. Pardeep Dahiya, Advocate for R-1 & R-2

24.04.2019 - The Appellant, one of the 'Resolution Applicant' has preferred this

appeal against the impugned order dated 19th December, 2018 passed by the

Adjudicating Authority (National Company Law Tribunal), New Delhi directing

liquidation of Global Houseware Limited as the 'Resolution Plan' submitted by

eligible 'Resolution Applicant' were rejected by Committee of Creditors on 16th

April, 2018 with 83.45% voting share.

The grievance of the Appellant(s) are that their 'Resolution Plan' was not

considered by the 'Committee of Creditors' on the ground that they are related

party.

Company Appeal (AT) (Insolvency) No. 806 of 2018 ....contd./ 2

It is submitted that the 'Corporate Debtor' Global Houseware Limited is a

small scale industry and, therefore, the Appellant(s) cannot be held to be

ineligible in terms of Section 29A of (Insolvency & Bankruptcy Code), ('I&B')

Code. However, as the 'Resolution Plan' were rejected on 16th April, 2018, we

are of the view that the Appellant cannot take advantage of amendment as made

in the Act on 6th June, 2018.

It was next contended that the Appellant(s) are not related party, however,

we are not inclined to decide such issue as more than 270 days have passed.

In the circumstances, we uphold the decision of liquidation as more

than 270 days have passed. However, as per the decision and direction of

this Appellate Tribunal in "Y. Shivram Prasad Vs. S. Dhanapal & Ors."

in Company Appeal (AT) (Insolvency) No. 224 of 2018 passed on 27th

February, 2019, the liquidator is required to act, which reads 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:

Company Appeal(AT)(Insolvency) No. 806 of 2018 3

"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 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

Company Appeal(AT)(Insolvency) No. 806 of 2018 4

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."

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,

Company Appeal(AT)(Insolvency) No. 806 of 2018 5

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

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. 806 of 2018 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 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.

Company Appeal(AT)(Insolvency) No. 806 of 2018 7

(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 approved shall conform to the

liquidity test based upon the estimates provided to

them by the Board;

Company Appeal(AT)(Insolvency) No. 806 of 2018 8

(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 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

Company Appeal(AT)(Insolvency) No. 806 of 2018 9

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:

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

Company Appeal(AT)(Insolvency) No. 806 of 2018 10

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 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. 806 of 2018 11

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 established under section 4 of the Sick

Industrial Companies (Special Provisions) Act, 1985 shall

abate;

Company Appeal(AT)(Insolvency) No. 806 of 2018 12

(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 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.

Company Appeal(AT)(Insolvency) No. 806 of 2018 13

(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.

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

Company Appeal(AT)(Insolvency) No. 806 of 2018 14

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:

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.

Company Appeal(AT)(Insolvency) No. 806 of 2018 15

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, 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.

Company Appeal(AT)(Insolvency) No. 806 of 2018 16

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'

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

Company Appeal(AT)(Insolvency) No. 806 of 2018 17

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 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."

Company Appeal(AT)(Insolvency) No. 806 of 2018 18

The appeal stands disposed of with the aforesaid observations 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. 806 of 2018