Securities And Exchange Board Of India vs Assam Company India Ltd. & Ors

[Arising out of Order dated 20th September, 2018 passed by National Company Law Tribunal, Guwahati Bench, in I.A. No. 58/2018 in C.P. (IB) No. 20/GB/2017]

IN THE MATTER OF:

Securities and Exchange Board of India, Plot No. C4A, G Block, Bandra Kurla Complex, Bandra East, Mumbai - 400 051. Through its Manager - Mr. Deepak Wadhwa ...Appellant

Vs

1. Assam Company India Ltd. Having its registered office at Green Wood Tea Estate, P. O. Dibrugarh Assam. Through its Managing Director.

2. SREI Infrastructure Finance Pvt. Ltd. Having its registered office at: 86C, Topsia Road (South), Kolkata - 700 046 Through its Managing Director.

3. Mr. C. A. Kannan Tiruvengadam, Netaji Subhas Villa, Flat No. 3C, 3rd Floor, 18 Karunamoyee, Ghat Road, Near Dharapara tollygunge, Kolkata, West Bengal - 700 082.

4. BRS Ventures Investment Limited, Having registered office at: Unit S503A, Level 5, Emirates Financial Towers, Dubai International Financial Centre, P.O. Box 507117, Dubai, United Arab Emirates. ....Respondents

Present: For Appellant: Mr. Dileep Poolakkot, Advocate. For Respondents: Mr. Ajay Gaggar, Ms. Upama Bhattacharjee, Mr. Robin Sirohi, Ms. Vinita Rathore, Advocates. -2-

SUDHANSU JYOTI MUKHOPADHAYA, J.

Corporate Insolvency Resolution Process was initiated against 'Assam

Company India Limited' (Corporate Debtor) by order dated 26th October, 2017

passed by the Adjudicating Authority (National Company Law Tribunal),

Guwahati Bench. By the impugned order dated 20th September, 2018, the

Adjudicating Authority approved the Resolution Plan submitted by the 4th

Respondent - 'BRS Ventures Investment Ltd.' (Successful Resolution Applicant).

2. The Adjudicating Authority noticed that the plan has been approved by

100% voting share of the Committee of Creditors in its meeting held on 25 th

June, 2018 and fulfill the criteria including viability and feasibility and plan is

in consonance with Section 30(2) of the Insolvency and Bankruptcy Code, 2016

(hereinafter referred to as 'I&B Code'). The Appellant - 'Securities and Exchange

Board of India' (hereinafter referred as 'SEBI') has challenged the order of

approval of the Resolution Plan dated 20th September, 2018.

3. The case of the Appellant, as pleaded, is that Appellant (SEBI), a Statutory

Regulator constituted by and under 'The Securities and Exchange Board of India

Company Appeal (AT) (Insolvency) No. 629 of 2018 -3-

Act, 1992', to protect the interests of investors in Securities and to prompt the

development of, and to regulate, the securities market and for matters connected

therewith or incidental thereto, received a letter dated 09.06.2017 from the

Ministry of Corporate Affairs (MCA) forwarding therewith a copy of letter dated

23.05.2017 of Serious Fraud Investigation Office (SFIO) annexing a list of 331

shell companies. SEBI thereupon, issued directions vide a letter dated

07.08.2017 to the concerned stock exchanges to take certain measures,

whereupon, 1st Respondent (Corporate Debtor) preferred an Appeal to the

Securities Appellate Tribunal, Mumbai (the SAT), when by an order dated

21.08.2017 the directions 1 (a) and (b) in the communication dated 07.08.2017

issued by SEBI were stayed and liberty granted to 1st Respondent to make a

representation to SEBI, which if made was to be disposed of in accordance with

law. It was also made clear that the said order of the SAT would not come in the

way of SEBI as well as stock exchanges to investigate 1st Respondent.

4. Appellant, received representations dated 29.08.2017 from 1st Respondent

and granted to 1st Respondent an opportunity of personal hearing on

13.09.2017. Thereafter, on an independent examination and analysis of the

information and documentary evidence submitted to Appellant by

1st Respondent, a detailed interim order dated 08.12.2017 under Sections 11,

11(4), 11A and 11B of the Securities and Exchange Board of India Act, 1992 was

Company Appeal (AT) (Insolvency) No. 629 of 2018 -4-

passed by the Whole Time Member of the Appellant. The said interim order

issued the following directions:

"1. The trading in securities of ACIL shall be reverted to the

status as it is stood prior to issuance of letter dated

August 7, 2017 by SEBI.

2. Stock Exchange shall appoint an independent forensic

auditor, inter alia, to verify:

a) Misrepresentation including of financials and/or

business of ACIL,

b) Misuse of the funds/ books of accounts of ACIL.

3. The promoters and directors in ACIL are permitted only to

buy the securities of ACIL. The shares held by the

promoters and directors in ACIL shall not be allowed to

be transferred for sale by the depositories.

4. The other actions envisaged in SEBI's letter dated August

7, 2017 in para 1 (d), as may be applicable, and the

consequential action taken by Stock Exchanges shall

continue to have effect against ACIL."

Company Appeal (AT) (Insolvency) No. 629 of 2018 -5-

5. The representations of the 1st Respondent were disposed of and the above

directions were to take effect immediately and were to remain in force until

further orders. The said order also advised the 1st Respondent to file its reply/

objections to the interim order, if any, within 30 days from the date of receipt

thereof and also to indicate whether it desires to avail an opportunity of personal

hearing on a date and time to be fixed on specific request being made in this

regard in the reply/ objection, failing which the preliminary findings in the order

and ad interim directions would stand confirmed against the 1st Respondent,

without any further orders. Post passing of the interim order, the Appellant vide

letter dated 25.01.2018 and 02.04.2018 provided the inspection of documents

to 1st Respondent as was sought for. Additionally, the Appellant granted an

opportunity of hearing to 1st Respondent through Resolution Professional ('RP')

on April 24, 2018. However, the 1st Respondent failed to respond to the same.

Further, the Appellant granted another opportunity of hearing to the

1st Respondent through RP on 23.05.2018, to which the RP requested to defer

the scheduled hearing till disposal of the Writ Petition filed before the Hon'ble

Gauhati High Court.

6. Inspite of the same, the 1st Respondent failed to avail the various

opportunities of hearing granted to it nor filed its objection/ reply to the

observations made in the interim order.

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7. 1st Respondent, thereafter, filed a Writ Petition being W.P. (C) No.

2572/2018 before the Gauhati High Court and challenged the letter dated

09.06.2017 of the Government of India, Ministry of Corporate Affairs, which

came to be allowed by a Learned Single Judge of the Gauhati High Court, setting

aside only the letter dated 09.06.2017 of MCA and not the letter dated

23.05.2017 of the SFIO. Appellant, thereafter, challenged the order of the

Learned Single Judge by way of a Writ Appeal No.102/2019 before the Hon'ble

High Court wherein the Application for stay filed by Appellant has been heard

and order was reserved.

8. Appellant-SEBI on 28.09.2018 received intimation(s) from National Stock

Exchange of India Ltd. and BSE Ltd. that the 1st Respondent had by letter dated

25.09.2018 communicated to the said exchanges that an order dated 20.09.2018

had been passed by the NCLT, Guwahati Bench, approving a Resolution Plan

submitted by the Successful Resolution Applicant namely a Abu Dhabi based

"BRS Ventures Investment Ltd." Thereafter, the Appellant-SEBI, on receipt of

the aforementioned information and enquiry, found that the Resolution Plan

under Chapter IX-Restructuring of Capital vide Clause 3 thereof provides for

Delisting of Equity Shares of 1st Respondent.

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According to learned counsel for the Appellant, the aforesaid

communication dated 25.09.2018 addressed by the 1st Respondent to the Stock

Exchanges clearly seeks delisting of the Equity Shares of the 1st Respondent by

making payments to public shareholders (in terms of the exit price so

determined) on or before 19.10.2018. The concerned Stock Exchange (National

Stock Exchange of India Ltd.) vide e-mail dated 4.10.2018 had indicated that the

Company has fixed record date of 11.10.2018 to determine the shareholders who

were to receive the consideration. Hence, Appellant preferred the present Appeal

on 10.10.2018 before this Hon'ble Appellate Tribunal.

9. It was submitted that the approved Resolution Plan in so far as it has the

effect of denuding the jurisdiction of Appellant under the provisions of the

Securities and Exchange Board of India Act, 1992 ("the SEBI Act"), in an indirect

manner, the 1st Respondent without having taken any steps to file its reply/

objections against the interim order dated 08.12.2017 passed by Appellant or

seeking an opportunity of hearing with respect thereto or challenging the same

before the appropriate Forum, contravened the SEBI Act and thereby hit by the

provisions of Section 30 (2) (e) of the Insolvency and Bankruptcy Code, 2016.

10. Further, according to Appellant the effect of the impugned clause in the

Resolution Plan is that the Equity Shares of the 1st Respondent shall stand

delisted from the concerned Stock Exchanges viz. National Stock Exchange of

India Ltd. and BSE Ltd., will not only render the examination/ action initiated

Company Appeal (AT) (Insolvency) No. 629 of 2018 -8-

by Appellant - SEBI in conjunction with the said Stock Exchanges against the

1st Respondent nugatory and ineffective, but also consequently compel Public

Share Holders to exit for a very meagre amount, which would not be in the

interest of investors and the Securities market.

11. It was submitted that the investigations of Appellant under the provisions

of the SEBI Act, 1992 and SEBI Regulations framed there under in respect of the

various violations of the Companies Act, 2013, LODR Regulations and other laws

noticed in the Secretarial Audit Report as well as prima facie observations

regarding misuse of books of accounts/ funds by 1st Respondent, cannot and

ought not be permitted to be scuttled by adopting the method of delisting of the

equity shares of the 1st Respondent, by way of approval of the Resolution Plan.

The inclusion of delisting of Securities in the Resolution Plan is clearly an

attempt to wriggle out of the Jurisdiction of and proceedings instituted by

Appellant.

12. Further, according to Appellant Resolution Plan involving delisting of

Equity Shares ought not and could not have proceeded with in the absence of

and without hearing Appellant - SEBI, a Statutory Regulator entrusted with

protection of investors and regulation of securities market, in as much as the

said Plan in so far as it allows delisting of Equity Share of the 1st Respondent is

in the nature of hampering further examination by the Appellant/ Stock

Exchanges over the listed company.

Company Appeal (AT) (Insolvency) No. 629 of 2018 -9-

13. It was submitted that 1st Respondent after having impleaded Appellant

SEBI as party/ Respondent before the Hon'ble High Court of Guwahati ought to

have caused 3rd Respondent to implead Appellant SEBI before the Adjudicating

Authority (NCLT), particularly keeping in view the examination / actions initiated

by Appellant, details whereof are available in public domain.

14. It was further submitted that the Learned Single Judge of the Guwahati

High Court while allowing W.P. (C) No. 2572/2018 filed by the 1st Respondent

has only quashed and set aside letter dated 09.06.2017 issued by the Director

General Corporate Affairs, Ministry of Corporate Affairs, Government of India to

the Chairman of the Appellant but the letter dated 23.05.2017 issued by the

Serious Fraud Investigation Office (SFIO), which refers to a meeting held at

11.00 hrs. on 23.05.2017 at the Conference Room of the Secretary, MCA and

discussions on sharing of database of listed shell companies with SEBI, or the

database of listed shell companies or the interim order dated 08.12.2017 of the

WTM of Appellant and the preliminary findings and directions contained therein

have not been, interfered with or set aside.

15. According to Appellant the conduct of the 1st Respondent in neither

availing of the various opportunities of hearing granted to them by Appellant nor

filing any objections/ reply to the observations made in the interim order dated

Company Appeal (AT) (Insolvency) No. 629 of 2018 -10-

08.12.2017 passed by Appellant clearly establishes that 1st Respondent

deliberately and willfully delayed to render the proceedings before Appellant

nugatory and void and thereby tried to avoid by any means, undergoing the

Forensic Audit as was directed by the Appellant.

16. It is informed that the 1st Respondent has in its representation dated

29.08.2017 submitted to Appellant that the 1st Respondent is a fully operating

company, having a labour force more than 20,000 workers at its various Tea

Estates, with sale of tea being effected in the domestic market as also through

various tea auctioneers as well as by private sale arrangements with customers.

Furthermore, the 1st Respondent is also stated to have forayed into exploration

and production of oil and gas (hydrocarbon) in the State of Assam. According to

Appellant, the 1st Respondent in its Application has also taken similar plea

asserting that it has employees over 25,000 people with well laid-out

infrastructure, duly supported by planned social welfare activities. Therefore,

according to Appellant in these purported circumstances, it is wholly illogical

that 1st Respondent would fail to contest corporate insolvency resolution process

and permit confirmation of a Final Resolution Plan.

17. Learned counsel appearing on behalf of the 4th Respondent submitted that

the sole ground taken by the Appellant is that there are pending investigations

initiated by Appellant against 'Assam Company India Limited' (1st Respondent)

as a shell company pursuant to a letter dated 9th June, 2017 issued by the

Company Appeal (AT) (Insolvency) No. 629 of 2018 -11-

Ministry of Corporate Affairs and therefore the delisting of equity shares should

not be allowed in terms of the resolution plan.

18. However, it is informed that the 1st Respondent has challenged such

investigation of SEBI before the Hon'ble High Court, Guwahati in Writ Petition

(C) 2572/2018 and by an order dated 7th March, 2019, the Hon'ble High Court

has already set aside the investigation. Thereafter, the Appellants preferred an

appeal before the Division Bench against the said Order dated 7th March, 2019,

however, no order of stay has been passed in the said case.

19. Further, according to the 4th Respondent, the 1st Respondent cannot be

treated as a shell company after it has been taken over by 4th Respondent

pursuant to resolution plan.

20. Learned counsel appearing on behalf of the 4th Respondent while

submitted that under Sub-section (3) of Section 61 r/w Section 32 of the I&B

Code the appeal is not maintainable, it is also submitted that rights of public

shareholders have been protected.

21. It was submitted that apart from protecting rights of all the stakeholders

including Financial Creditors, Operational Creditors, the rights of Public

Shareholders have also been protected. Liquidation value of 1st Respondent

(Corporate Debtor) is much lower than the amount payable to Financial

Company Appeal (AT) (Insolvency) No. 629 of 2018 -12-

Creditors and therefore the liquidation value of the Corporate Debtor has been

assessed to be NIL. The same has been reflected in the order dated 20th

September, 2018 passed by the Adjudicating Authority.

22. Further, according to learned counsel for the 4th Respondent, the

Successful Resolution Applicant has provided a sum of Rs.1.82 crores for the

public shareholders which is in consonance with the Gazette Notification dated

31st May, 2018 issued by SEBI for delisting of shares pursuant to the Resolution

Plan approved under Section 31 of the I&B Code.

23. It was contended that the approved resolution plan has clearly laid down

the procedure for delisting of the equity shares of the 1st Respondent. The said

procedure is in complete conformity with the procedure laid down by SEBI and

in particular the Gazette Notification dated 31st May, 2018 for 'Delisting of Equity

Shares (Amendment) Regulations, 2018'.

24. According to learned counsel, the 4th Respondent has provided for exit

route to the public shareholders by earmarking Rs.1.82 crores for cancellation

of their shares and no individual and/or entity having any dues has been

deprived of any amount under the approved resolution plan. Therefore,

according to him the approved resolution plan has taken care of interest of the

public shareholders and all the stakeholders, therefore, the apprehension of the

Appellant is completely misplaced.

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25. It was further submitted that the delisting of the shares of 1st Respondent

is indispensable for proper execution and implementation of the Resolution Plan.

The 4th Respondent has already infused a sum of Rs.1064 crores in order to pay

off all stakeholders in terms of the approved Resolution Plan and the 4th

Respondent is entitled to take complete control over 1st Respondent without

having any exposure towards public interest.

26. We have heard learned counsel for the parties and perused the records.

27. The copy of the revised Resolution Plan has been enclosed by the 4th

Respondent (BRS Ventures Investment Ltd.) as Annexure 'A' to their reply

affidavit. In the said Resolution Plan, the 4th Respondent has specifically

mentioned as to how it intends to delist the shares of the Corporate Debtor,

relevant of which reads as follows:-

"3. Delisting of the Equity Shares of ACIL

ACIL shall take the following steps for delisting of its Equity

Shares in accordance with the provisions of the Securities and

Exchange Board of India (Delisting of Equity Shares)

Regulations, 2009, as amended from time to time, read with

the Securities and Exchange Board of India (Delisting of Equity

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Shares) (Amendment) Regulations, 2018 issued by the SEBI

on May 31, 2018:

(a) ACIL shall, within 7 (seven) days of the Effective Date,

submit an application to the concerned stock exchanges

and SEBI for clarification/ approval to delist its shares

from the recognised stock exchanges and requesting for

clarity on the procedure to be followed for such delisting.

(b) In the application made under paragraph 3(a), ACIL shall

disclose (i) the details of delisting its shares; (ii) the

justification for exit price of 1.82 Crores to be paid to the

public shareholders in respect of the proposed delisting;

(iii) the record date to be fixed for determining the public

shareholders to whom the exit price is to be paid; and (iv)

the manner and timelines within which the exit price

payments are intended to be made by ACIL to the public

shareholders.

(c) The application shall be accompanied by a copy of the

Resolution Plan as approved by the NCLT.

ACIL shall thereafter, undertake a delisting of its shares and

a capital reduction and cancellation of the entire existing

equity share capital held by the Public (i.e. 18,19,18,027

Company Appeal (AT) (Insolvency) No. 629 of 2018 -15-

Equity Shares shall stand cancelled without requirement of

writing of the words "and reduced" in the corporate name and

style of ACIL) and in consideration thereof, make payments of

the exit price to the public shareholders (as on record date), in

accordance with the approval letter/order issued by SEBI/ the

stock exchanges. The cancellation of shares and capital

reduction (a) shall be applicable to the Public Shareholders of

ACIL; (b) shall be pursuant to the NCLT Approval Order and

shall not require any other procedure as required under the

Companies Act, including that under Section 66 of the

Companies Act or regulations of the SEBI; and (c) shall not

require the consent of any of the creditors of ACIL or approval

of the shareholders of ACIL as the Resolution Plan upon being

approved by the NCLT shall be binding on ACIL and its

stakeholders (including its creditors and shareholders)."

28. Section 32 of I&B Code deals with appeal from an order approving the

resolution plan, which is quoted below:-

"32. Appeal. - Any appeal from an order approving the

resolution plan shall be in the manner and on the grounds laid

down in sub-section (3) of section 61."

Company Appeal (AT) (Insolvency) No. 629 of 2018 -16-

29. Sub-section (3) of Section 61 shows the limited ground(s) on which an

appeal can be preferred against an approved Resolution Plan, as quoted below:-

"61. Appeals and Appellate Authority.(1) Notwithstanding

anything to the contrary contained under the Companies

Act 2013, any person aggrieved by the order of the

Adjudicating Authority under this part may prefer an appeal

to the National Company Law Appellate Tribunal.

.....x....x...x......

(3) An appeal against an order approving a resolution

plan under section 31 may be filed on the following grounds,

namely:--

(i) the approved resolution plan is in contravention of the

provisions of any law for the time being in force;

(ii) there has been material irregularity in exercise of the

powers by the resolution professional during the

corporate insolvency resolution period;

(iii) the debts owed to operational creditors of the

corporate debtor have not been provided for in the

resolution plan in the manner specified by the Board;

Company Appeal (AT) (Insolvency) No. 629 of 2018 -17-

(iv) the insolvency resolution process costs have not

been provided for repayment in priority to all other

debts; or

(v) the resolution plan does not comply with any other

criteria specified by the Board."

30. Learned counsel appearing on behalf of the Appellant submitted that the

approved Resolution Plan is against the interim order dated 8th December, 2017

passed by SEBI (Appellant) under Section 7, 11(4), 11A and 11B of the Securities

and Exchange Board of India Act, 1992. However, such alleged violation of the

interim order passed by SEBI cannot be held to be as against 'any existing

provision of law', as prescribed under Section 30(2)(e), which reads as follows:-

"30. Submission of resolution plan.-(1) A resolution

applicant may submit a resolution plan to the resolution

professional prepared on the basis of the information

memorandum.

(2) The resolution professional shall examine each

resolution plan received by him to confirm that each resolution

plan--

Company Appeal (AT) (Insolvency) No. 629 of 2018 -18-

(a) provides for the payment of insolvency resolution

process costs in a manner specified by the Board in

priority to the repayment of other debts of the

corporate debtor;

(b) provides for the repayment of the debts of

operational creditors in such manner as may be

specified by the Board which shall not be less than the

amount to be paid to the operational creditors in the

event of a liquidation of the corporate debtor under

section 53;

(c) provides for the management of the affairs of the

Corporate debtor after approval of the resolution plan;

(d) the implementation and supervision of the resolution

plan;

(e) does not contravene any of the provisions of the

law for the time being inforce;"

31. The Appellant has not disputed that the investigation started against the

Corporate Debtor was challenged by the Corporate Debtor before Hon'ble High

Court of Guwahati in Writ Petition (C) No. 2572/2018. In said case, by order

Company Appeal (AT) (Insolvency) No. 629 of 2018 -19-

dated 7th March, 2019, the Hon'ble High Court of Guwahati has set aside the

investigation, copy of which has been enclosed.

32. The interim order passed by SEBI (Appellant) does not amount to any

existing law, to attract Clause (e) of Section 30(2) of the I&B Code, therefore, the

Appellant cannot take plea that the approved Resolution Plan is in contravention

of any law for the time being in force. Therefore, ground shown in Section 61(3)(i)

for preferring an appeal against approved Resolution Plan is not attracted and is

not applicable in the present case.

33. The Appellant has also failed to make out a case under Section 61(3)(ii) to

suggest that there has been any material irregularity in exercising the powers by

the resolution professional during the corporate insolvency resolution period.

The ground shown in Section 61(3)(iii), (iv) and (v) are also not attracted and not

the ground taken by the Appellant to allege that debt owed to Operational

Creditors have not been provided, or Insolvency Resolution Process costs have

not been provided for repayment or the Resolution Plan does not comply with

any other criteria specified by the Board.

34. In view of the aforesaid position, we hold that the appeal is not

maintainable under Section 61(3) of the I&B Code as also on merit, in absence

of any violation of the provisions of the Code or any existing law or material

irregularity.

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35. For the reason aforesaid, we are not inclined to interfere with the

impugned order of approval dated 20th September, 2018 passed by the

Adjudicating Authority (National Company Law Tribunal), Guwahati Bench.

However, the order passed by the Adjudicating Authority or this Appellate

Tribunal will not come in the way of the SEBI or any competent authority to take

steps against erstwhile Promoters, Directors or Officers or others, if any or all of

them had violated any of the provisions under SEBI Act or rule framed

thereunder or any other law as may be taken against such person of listed

company. The appeal is dismissed but with aforesaid observation and liberty.

No costs.

[Justice S. J. Mukhopadhaya] Chairperson

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

[Kanthi Narahari] Member (Technical)

NEW DELHI 29th August, 2019 AM

Company Appeal (AT) (Insolvency) No. 629 of 2018