S. C. Sekaran vs Amit Gupta & Ors

For Respondents: Mr. Mehul Parti and Ms. Swati Seth, Advocates for R.P. Mr. V. Seshagiri and Mr. Adhish Rajvanshi, Advocates for Respondent Nos. 2 and 3

ORDER

29.01.2019 These appeals have been preferred by the management of

'Hindustan Dorr-Oliver Limited' (Corporate Debtor) and 'HDO Technologies

Limited' (the other Corporate Debtor) against orders both dated 25th June, 2018

whereby and whereunder the Adjudicating Authority (National Company Law

Tribunal) Mumbai Bench passed order(s) of liquidation under Section 33(1) of

the Insolvency and Bankruptcy Code, 2016 (for short, 'the I&B Code') of both

the companies with certain directions to the liquidator.

2. Earlier two separate appeals were preferred by 'resolution applicant(s)

namely 'Eight Finance Pvt. Ltd.' and 'Pennar Industries Ltd.' in respect of the

'corporate insolvency resolution process' initiated against 'Hindustan Dorr- 2

Oliver Limited' (Corporate Debtor) and 'HDO Technologies Limited' (other

Corporate Debtor) wherein opportunity was given to them to submit better

revised resolution plan(s) and the 'Committee of Creditor(s)' were directed to

consider them. Subsequently, the 'resolution applicant(s)' namely 'Eight

Finance Pvt. Ltd.' and 'Pennar Industries Ltd.' withdrawn their appeals. In the

aforesaid background and there being no 'resolution plan', we are not inclined

to interfere with the impugned order(s) both dated 25th June, 2018 whereby

order(s) of liquidation has been passed against 'Hindustan Dorr-Oliver Limited'

(Corporate Debtor) and 'HDO Technologies Limited' (other Corporate Debtor).

3. Learned counsel appearing on behalf of the Management (Appellant)

submitted that the 'Liquidator' is supposed to keep the companies as 'going

concern' even during the period of liquidation. If so necessary, the 'Liquidator'

can take steps under Section 230 of the Companies Act, 2013 after consultation

with the 'members' or 'the creditors' of the Companies for making arrangement

with the third party and thereafter take approval of the 'National Company Law

Tribunal, Mumbai Bench'. It is further submitted that it is also open to the

'Liquidator' to sell the companies to third parties before selling the moveable or

immovable assets of the company separately.

4. Learned counsel appearing on behalf of the 'Liquidator', on instructions

from the 'Liquidator', who is present, submits that the 'Liquidator' will ensure

that both the companies remain going concern and if so necessary, he will take

appropriate orders from the Adjudicating Authority. He may also take other

steps in accordance with law as suggested by the learned counsel for the

appellant subject to the approval of the Adjudicating Authority.

Company Appeal (AT) (Insolvency) No. 495 & 496 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

Company Appeal (AT) (Insolvency) No. 495 & 496 of 2018 4

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."

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:

Company Appeal (AT) (Insolvency) No. 495 & 496 of 2018 5

"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 liquidation, only the Official

Liquidator could propose a compromise or

Company Appeal (AT) (Insolvency) No. 495 & 496 of 2018 6

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.

Explanation.-- For the purposes of this sub-

section, arrangement includes a reorganisation of the

company's share capital by the consolidation of

Company Appeal (AT) (Insolvency) No. 495 & 496 of 2018 7

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 approved shall

conform to the liquidity test based upon the

estimates provided to them by the Board;

Company Appeal (AT) (Insolvency) No. 495 & 496 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:

Company Appeal (AT) (Insolvency) No. 495 & 496 of 2018 9

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 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

Company Appeal (AT) (Insolvency) No. 495 & 496 of 2018 10

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 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

Company Appeal (AT) (Insolvency) No. 495 & 496 of 2018 11

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:--

(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. 495 & 496 of 2018 12

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 least ninety per cent.

value, agree and confirm, by way of affidavit, to the

scheme of compromise or arrangement.

Company Appeal (AT) (Insolvency) No. 495 & 496 of 2018 13

(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 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

Company Appeal (AT) (Insolvency) No. 495 & 496 of 2018 14

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

thereafter, if not possible to sell the company in part and in accordance with law.

9. The 'Liquidator' if initiates, will complete the process under Section 230 of

the Companies Act within 90 days. For the purpose of counting the period of

liquidation, the pendency of the appeal(s) preferred by the 'Eight Finance Pvt.

Ltd.' that is from 12th July, 2018 and till date should be excluded. In the

circumstances, while we are not inclined to interfere with the impugned order(s)

both dated 25th June, 2018 direct the Liquidator to act in accordance with law

and as observe above.

Both the appeal(s) stand disposed of with the aforesaid observations and

directions. No costs.

[Justice S.J. Mukhopadhaya] Chairperson

[ Justice Bansi Lal Bhat ] Member (Judicial) /ns/uk/

Company Appeal (AT) (Insolvency) No. 495 & 496 of 2018