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2020 (1) TMI 1215 - Tri - Companies LawApproval of Scheme of Comprornise arrangement - applicability of disqualification as prescribed under Section 29 A of the I B Code 2016 - HELD THAT - Section 29A yield itself to be bifurcated into two namely the aspects in relation to the default committed by the promoters giving rise to the civil consequences/ liability and the other one in relation to the culpable aspect in view of criminality involved thereby attracting penal provisions under criminal law. In this regard it can be noted for (e.g.) that disqualification in relation to Section 29 A (c) arises in view of being classified as a Non-Performing Asset (NPA) as compared to the one which arises under Section 29 A (d) as the same deals with regard to the criminal nature of the acts committed by the Promoters of the Company or the Resolution Applicant as the case may be. From the very nature of the comparison of both the Provisions it is quite clear the disqualifications provided under Section 29A(c) and 29 A (d) cannot be painted with the same brush as the former by virtue of the 1st Proviso to Section 29A(c) itself gives an opportunity from coming out of the said disqualification of course prior to the filing of the Resolution Plan whereas in the latter case it is not so. Subsequent to the liquidation the account of the Corporate Debtor in Liquidation presently cannot be considered as a Non-Performing Asset as the amount had been fully settled being owed to the Secured Financial Creditors at the time of Liquidation by the Promoters/ Propounders of the Scheme from their personal accounts. Further in relation to the creditors presently be it Financial Creditors or Operational Creditor as already noted above the Scheme has been approved unanimously as per the Report of the Chairman appointed for the meetings. Looking at the Scheme per se the salient features of the Scheme have been brought about by the Liquidator in the Application filed at. In relation to the Scheme filed under Section 230 of the Companies Act 2013 in connection with I B Code 2016 proceedings Section 29A of I B Code 2016 is made applicable however in the instant case taking into consideration the settlement of Financial Creditor pre-liquidation and in the absence of other disqualification being demonstrated depriving the propounders of the Scheme will not be appropriate - It is also further to be noted as pointed out by the Learned Counsel for the Promoter of the Company in Liquidation that in addition to the Company in Liquidation in the capacity as a Promoter they are also Secured Creditors of the Company in Liquidation having satisfied the debts of the Secured Financial Creditors and thereby having stepped in to the shoes of the said secured Financial Creditor in terms of Section 140 to 141 of the Indian Contract Act 1872 thus in any case the benefits of the secured assets of the Corporate Debtor enuring to the benefit of the proponent of the Scheme namely the Promoter while fully satisfying the secured Financial Creditors and also under the Scheme as it is structured in a manner that the repayment is to the full satisfaction of other creditors be it the Financial Creditor or otherwise who have also unanimously approved the Scheme placed before it subject to modifications also incorporated by the proponents of the Scheme. The Liquidator is directed in any case to obtain an affidavit from the Proponents of the Scheme that while presenting the Scheme to the Liquidator as per the leeway provided by the Hon ble NCLAT that they did not suffer any of the disqualifications as provided under Section 29A of Code 2016 and the sanction is subject to the submission of the affidavit as directed above within a week from the date of this order and the Liquidator after application of his mind in relation to the contents of the affidavit and the veracity of the statements made therein filing a report before this Tribunal within a period of one week thereafter. In relation to statutory authorities to whom notice was ordered to be issued save Income Tax whose observations have already been extracted in paragraphs supra none of the other authorities have responded. Application disposed off.
Issues Involved:
1. Approval of the Scheme of Compromise and Arrangement. 2. Competency of the Promoters under Section 29A of the I&B Code, 2016. 3. Settlement of Financial Creditors and impact on the Scheme. 4. Liquidation costs and Liquidator fees. 5. Rights of the Income Tax Authority. Detailed Analysis: 1. Approval of the Scheme of Compromise and Arrangement: The Liquidator filed an application seeking approval for a Scheme of Compromise and Arrangement that had been approved by the equity shareholders and creditors of the company in liquidation. The Tribunal considered the facts leading to the application, including the initiation of the Corporate Insolvency Resolution Process (CIRP) and the subsequent liquidation order. The Scheme proposed by the promoters aimed to settle all classes of creditors, including financial, operational, secured, unsecured, statutory, and workmen creditors, upon confirmation of the Scheme. 2. Competency of the Promoters under Section 29A of the I&B Code, 2016: A significant issue was whether the promoters, who were disqualified under Section 29A during the CIRP, could propose a Scheme of Compromise and Arrangement. The Tribunal noted the judgment in Jindal Steel and Power Ltd. Vs. Arun Kumar Jagatramka & Anr., which stated that promoters ineligible under Section 29A cannot make an application for compromise and arrangement. However, the promoters argued that their disqualification should not apply as they had settled the financial creditors' dues. The Tribunal gave both parties an opportunity to make submissions regarding the disqualification. 3. Settlement of Financial Creditors and impact on the Scheme: The promoters had fully settled the secured financial creditors' dues, which was acknowledged by the Tribunal. The Tribunal noted that the promoters had stepped into the shoes of the secured creditors and proposed to settle other creditors fully. The Tribunal considered whether the disqualification under Section 29A(c) was cured by the settlement and whether the promoters could propose the Scheme. The Tribunal concluded that since the promoters had settled the secured creditors' dues and did not suffer from other disqualifications under Section 29A, they should not be penalized. 4. Liquidation costs and Liquidator fees: The Liquidator raised concerns about the Scheme's provision for liquidation costs and fees, which were not specifically quantified. The Tribunal noted that a separate application had been filed for the fixation of liquidation costs and fees, which would be dealt with separately. 5. Rights of the Income Tax Authority: The Income Tax Authority filed a memo reserving its rights to challenge the Scheme if it was found to be a device to evade taxes. The Tribunal preserved the rights of the Income Tax Authority in accordance with the Supreme Court's judgment in Marshall Sons & Co. India Ltd. Vs. Income Tax Officer. Conclusion: The Tribunal sanctioned the Scheme of Compromise and Arrangement, subject to the promoters submitting an affidavit confirming they did not suffer from disqualifications under Section 29A of the I&B Code, 2016. The Liquidator was directed to verify the affidavit and file a report. The rights of the Income Tax Authority were preserved. The application was accordingly ordered.
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