Uco Bank vs Srei Equipment Finance Limited And Anr

Company Appeal(AT) No. 232 of 2020 IN THE MATTER OF: UCO Bank Flagship Corporate Centre Branch 2 India Exchange Plance Kolkata - 700 001 West Bengal ...Appellant

Versus 1.SREI Equipment Finance Ltd. Vishwakarma, 86C, Topsia Road, Kolkata - 700 046 ...Respondent No.1 2.SREI Infrastructure Finance Ltd. Vishwakarma, 86C, Topsia Road, Kolkata - 700 046 ...Respondent No.2

Present: For Appellant : Mr. C.A. Sundaram, Sr. Advocate with Mr. P.C. Ghosh, Mr. Partha Sil and Mr. Tavish Bhushan Prasad Advocates. For Respondents : Mr. Joy Saha, Sr. Advocate with Mr. Abhijeet Sinha, Mr. Dipen Chatterjee, Ms. Rusha Mitra, Mr. Saptrshi Mandal, Ms. Shreyas Edupuganti, Advocates for Respondent No. 1. Mr. Kumar Anurag Singh, Mr. Zain A. Khan and Mr. Saikat Sarkar, Advocates for Respondent No. 2.

With Company Appeal(AT) No. 43 of 2021 & I.A. No. 641 of 2021 IN THE MATTER OF: Reserve Bank of India Regional Office at 15, N.S.Road Kolkata - 700 001 ...Appellant

Versus

Company Appeal (AT) No. 232 of 2020 & 43 of 2021 1 SREI Equipment Finance Ltd. Vishwakarma, 86C, Topsia Road, Kolkata - 700 046 ...Respondent

Present: For Appellant : Mr. Arun Kathpalia, Sr. Advocates with Mr. V.P. Singh, Ms. Vatsala Rai, Ms. Sayobani Basu and Ms. Vanya Chhabra, Advocates. For Respondent : Mr. Joy Saha, Sr. Advocate with Mr. Abhijeet Sinha, Mr. Dipen Chatterjee, Ms. Rusha Mitra, Mr. Saptrshi Mandal, Ms. Shreyas Edupuganti, Advocates for Respondent.

JUDGMENT

DR. ASHOK KUMAR MISHRA, TECHNICAL MEMBER

1. These two appeals have been filed by the Appellants under Section 421 of

the Companies Act, 2013 (for short 'Act') against the impugned order dated

21.10.2020 passed by the National Company Law Tribunal, Kolkata Bench

('Tribunal') in CP(CAA) No. 1106/KB/2020. Both the appeals seek

primarily the relief to set aside the order dated 21.10.2020 as stated above.

Both the appeals arising out of the same impugned order were clubbed

and heard together for disposal of the case.

2. This is a case of amalgamation of 'SREI Infrastructure Finance Limited' the

"Transferor Company" being a holding company with 'SREI Equipment

Finance Limited' being the "Transferee Company" which is 100%

subsidiary of the holding company in terms of business transfer agreement

dated 16.08.2019 by way of 'Slump Exchange' the definition of which is

given hereunder:

"Slump Exchange" shall means transfer of undertaking to the

Transferee, on a going concern basis, without values being without

Company Appeal (AT) No. 232 of 2020 & 43 of 2021 2 values being assigned to the individual assets and liabilities in

exchange of issuance and allotment of Shares by the Transferee to

the Transferor."

3. The Tribunal has passed the order for convening meeting of 'Creditors'

as defined in Part-III of the Scheme (Part-III Creditor) and also meeting

of Creditors as defined in Part-IV of the Scheme (Part -IV Creditor) on

16.12.2020 and 23.12.2020 for the purpose of their considering and if

fond fit approving with or without modification the scheme of

arrangement as submitted to the Tribunal and has also given

necessary directions for publication in the newspapers, giving notice,

appointing 'Chairperson', 'Scrutiniser' and fixing quorum for the

meetings etc., as happens formally at the initial stage to comply with

the provisions of the Section 230 of the Act and the 'Companies

(Compromises Arrangement and Amalgamations) Rules 2016'. The

Appellant, in general, in Company Appeal (AT) No. 232 of 2020 and in

specific Company Appeal (AT) No. 43 of 2021 is critical of the direction

given in para 23 (xviii) of the impugned order , the same is reproduced

below for ease of convenience:

Section 23(xviii) - In exercise of powers conferred under section 230 of the Companies Act, 2013 R/w Rule 11 of the National Company Law Tribunal Rules, 2016 and until the Scheme is considered by the said part III and Part IV Creditors and this Tribunal and to protect the interest of stakeholders, we direct that in the meantime, the part III and Part IV Creditors of the Applicant Company shall maintain status quo till further orders with respect to their respective contractual terms dues claims and rights and are estopped from taking any coercive steps including reporting in any form and /or changing the account status of the Applicant Company and its holding Company (SREI

Company Appeal (AT) No. 232 of 2020 & 43 of 2021 3 Infrastructure Finance Limited) from being a standard asset, which will prejudicially affect the implementation of the Scheme and render the said Scheme ineffective."

4. The Appellant in CA (AT) No. 232 of 2020 has raised the issue of

jurisdictional error or material irregularity in exercising the jurisdiction by

the Tribunal under Section 230 of the Act. Axis Bank letter dated

07.11.2019 page 59 volume -I of the Appeal paper book and letter dated

04.04.2020 of the Appellant- UCO Bank available at page 60 of the Volume

-I of the Appeal paper book, which were in their individual capacity has

been misconstrued as prior consent of 75% approval of the Secured

Creditors. The Appellant has also submitted that the UCO Bank,

representing the consortium of Bankers has filed this appeal against the

impugned order after their internal concurrence and approval. It was also

submitted by the Appellant that the meeting of Part-III Creditors were

held on 16.12.2020 and the proposed scheme has been rejected by

the majority of the Secured Creditors, therefore, the proposed scheme

has become infructuous as scheme now cannot be legally approved as

per the provisions of the Act and related Regulations and subsequent

events being cognizable, the Appellate Tribunal was requested to bring

the proceedings to its logical conclusion. It was also submitted by the

Appellant on a comparative analysis of Section 391 of the Companies Act,

1956 and Section 230 of the Act, there is no power to grant any stay of

proceedings under the Act as was available under Section 391(6) of the

Companies Act, 1956. Any order restraining statutory authority for

performing their duties as provided under the specific statute cannot be

granted while considering an application for approval of the Scheme. It is

Company Appeal (AT) No. 232 of 2020 & 43 of 2021 4 not in dispute that if final relief cannot be granted, no interim relief can be

granted. There is an overriding effect of the 'Recovery of Debts and

Bankruptcy Act, 1993', the 'Securitization and Reconstruction of Financial

Assets and Enforcement of Securities Interest Act, 2002' and 'the

Insolvency and Bankruptcy Code, 2016'. There are no provisions under the

Tribunal Rules, 2016 for review. The only power exists for correction and

rectification of order under Rule 148 and 154 of the Tribunal Rules, 2016.

It was also stated that interim order of injunction is in violation of Section

41 of the 'Specific Relief Act, 1963'.

5. The Appellant in Company Appeal (AT) No. 43 of 2021 being 'Reserve Bank

of India' (RBI) is statutorily responsible to regulate the banking sector etc.

while the Respondent - SREI Equipment Finance Limited, is a non-

banking financing company and is registered& licenced by the RBI. The

present scheme of arrangement involves the consent of the creditors

comprising the banks and financial institutions and the Tribunal has

passed the order for holding the meeting of creditors for consenting

/concurring the scheme. The consent is required by the majority of

creditors representing 3/4th (i.e. 75%) in value of the creditors or class of

creditors. The Appellant is critical for the direction of the Tribunal to

maintain a status quo so far as the Respondents debts are concerned, not

to classify the Respondents debts as 'NPA' and not taking any coercive

steps against the Respondents including reporting in any form or changing

the account status pending the consideration of the scheme by the

creditors. They have observed and stated that the Tribunal is in the teeth

of statutory scheme under the RBI Act and its related circulars including

Company Appeal (AT) No. 232 of 2020 & 43 of 2021 5 the master circular on prudential norms which has statutory force clearly

set outs the parameters for classifications of the loan amount as NPA. This

is the issue of grave importance and have significant public interest and

hence the Appellant, RBI is critical of this. They have also stated that they

were not party to the hearing and accordingly they could not present their

submissions. However, they have filed an intervention application before

the Tribunal. They have also stated that Section 230 of the Act, cannot be

extended to Bank and financial institution which are discharging public

functions by the impugned directions. The Appellants role as the prime

regulator vested with wide powers under the BR Act and RBI Act to

supervise, govern and regulate the Non-Banking Finance Company

(NBFC). The Tribunal has failed to consider Chapter III-B of the RBI Act.

The Tribunal has failed to appreciate as various courts have held in a

catena of judgments that the Appellant has been vested with broad powers

and directions as are available to it under the RBI Act and BR Act and have

statutory force Banks and financial institutions are bound to follow and

are not amenable to judicial review. It is also not in dispute that RBI Act is

a 'Self-contained Code'. The Appellant under Section 35A of the RBI Act

has to pass direction to the Respondent being NBFC and take action in the

interest of depositors and the Banking Company. The Tribunal is a

creature of the Act and has to be within the four walls of the Act and related

Regulations. Section 230- 232 of the Act cast a limited obligation on the

Tribunal to satisfy the scheme is not contrary to public policy and is not

prejudicial to the creditors and members of the company.

Company Appeal (AT) No. 232 of 2020 & 43 of 2021 6

6. While the Respondent No.1 - SREI Equipment Finance Limited has

submitted that the Tribunal has passed the order for holding of meeting of

creditors under the scheme and has only given the directions to the said

creditors to maintain a status quo with respect to a respective contractual

terms, claims and rights and estopped them from taking any coercive steps

including reporting in any form. The Respondents have also alleged that

the Appeal has been filed without appropriate authority. They have also

raised that such objections can be made in meeting or in Tribunal and has

no need to approach Appellate Tribunal. They have also stated that the

scheme can be considered in the second stage of the motion only on the

approval by the creditors covered under the scheme. They have also stated

that the Appellate Authority may not interfere with the convening of

meeting or any related actions. The conduct of the Appellants by imposing

a debit freeze on the accounts of the Respondent No.1 has hindered them

even to pay salaries to its employees or its other statutory obligations, all

this conduct disentitles them to any relief. Rule 5 of the Companies

(Compromises, Arrangements and Amalgamations) Rules, 2016 deals with

the procedure and the same has been followed by the Tribunal. Simply

Section 230 of the Act is silent on the provisions, which was earlier

available on Section 391(6) of the erstwhile Companies Act, 1956, it has

not wiped-out power of the Tribunal under Section 230 of the Act. They

have also stated that the very essence of the scheme under Section 230 is

to provide the creditors/stakeholders themselves to decide the scheme of

arrangement and such circumstances status quo is not against the law

laid down. In the first stage motion under section 230 of the Act basically

Company Appeal (AT) No. 232 of 2020 & 43 of 2021 7 only the Appellant Company appears and present their scheme for

convening the meeting of members or creditor and is not required to give

notice thereof to creditors. Creditors as well as Regulators come at a later

stage. They have even stated that Section 41 of the Specific Relief Act is

not applicable to the order as it is not a permanent injunction.

They have also raised that the Appeal is barred by Limitation and the same

was disposed of on 25.08.2021 after hearing the concerned parties that

the appeal is within limitation as per the order of the Hon'ble Supreme

Court in the case of Suo Motu Writ Petition (Civil) No. 03 of 2020 and the

concerned I.A No. 642 of 2021 for condonation of delay was allowed.

7. We have gone through the submissions made by the parties and has

carefully considered the pleadings and related regulations and are

observing as follows:

a. Chapter XV of the Act - Compromises, Arrangements and

Amalgamations are covered by Section 230 -240 of the Act.

b. The related regulation is the Companies (Compromises,

Arrangements and Amalgamations) Rules 2016 as amended from

time to time.

c. Generally, there are two motions. In the first motion in accordance

with Section 230 of the Act, Meetings are called for all the creditors

or class of creditors and to all the members or class of members and

the debentures holders of the Company. The Creditors or class of

creditors, or members, or class of members as the case may be, have

to approve by a majority of persons representing three-fourth in

value of creditors or class of creditors or members or class of

Company Appeal (AT) No. 232 of 2020 & 43 of 2021 8 members or in a case of a company being wound up then the

Liquidator /Insolvency Professional and the contributories of the

Company.

d. The Tribunal is to issue notice under Section 230(5) of the Act to the

Central Government, the Income Tax Authorities, the RBI, the

Security and Exchange Board, the Registrar, the Stock exchanges,

Official Liquidator, Competition Commission of India as applicable

and such other regulator or authority which are likely to be affected

by the Compromises or Arrangements and shall require their

representation to be made.

e. The Tribunal may dispense with calling of meeting of creditors or

class of creditors where such creditors or class of creditors having

at least 90% value agreed and confirmed by way of affidavit to the

scheme of Compromises or Arrangements.

f. The Tribunal is right in calling the meeting of creditors and

appointing 'Chairperson' and 'Scrutinizer' etc.

g. The direction that the part -III & IV of the creditors of the Company

shall maintain status quo about their debt, not to classify loan

amount as NPA, till further orders with respect to their contractual

terms, dues, claims and rights and stopping from taking coercive

steps including reporting in any form under Section 230 of the Act

R/w 11 of the NCLT Rules, 2016 is not in order. It is because the

creditors themselves have to get it approved from 75% of the value

of creditors and naturally, if they are not in favour of the scheme of

arrangement, it will be disapproved. If they are interested in the

Company Appeal (AT) No. 232 of 2020 & 43 of 2021 9 scheme, they will never invoke any coercive steps or other actions.

NPA is determined as per the RBI Master Circular and the Financial

institutions are to follow them. Even if the Company debt is under

NPA and even if the Company is under Liquidation, it can always

invoke Chapter-XV of the Act through Scheme of Arrangement to

come out of the situation. There is no bar in merging unhealthy

company with healthy company to come over the crisis. There was

no need perhaps to pass this specific directions.

h. Accordingly, we set aside the direction in para 23-xviii of the

impugned order dated 21.10.2020 & para 3 of daily order sheet

dated 21.10.2020 in CA(CAA) No. 1106/KB/2020 passed by the

Tribunal. We are not touching other aspects of impugned order.

We dispose of both the appeals with the above observations &

directions.

Pending IAs, if any stands disposed of. Interim Orders, other than

stated above, if any, passed by this Appellate Tribunal stands vacated. No

orders as to costs.

[Justice Jarat Kumar Jain] Member (Judicial)

(Dr. Ashok Kumar Mishra) Member(Technical)

7th September, 2021 New Delhi

Raushan.k

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