2020 (3) TMI 1320 - Tri - Insolvency and Bankruptcy

Compromise and arrangements - Seeking directions regarding dispensing with holding of any meetings of unsecured creditors and meeting of shareholders for the approval of the scheme - seeking approval of scheme A submitted by M/s. Seshasayee Paper and Board Ltd., or scheme B submitted by M/s. Sun Paper Mill Ltd., in the interest of the justice - HELD THAT - In a transaction of a reasonable magnitude as in the present instance, the quantum of payment offered by the respective proponents in their respective schemes to the different stake holders are almost on an even keel save some differences here and there. The financial capability and wherewithal to execute the respective schemes if either one is chosen, is also exhibited by both the scheme proponents as evident from the earlier paragraphs. Both the scheme proponents also belong to the industry as to the one being carried by the company in liquidation. Thus a piquant situation arises. In a transaction of a reasonable magnitude as in the present instance, the quantum of payment offered by the respective proponents in their respective schemes to the different stake holders are almost on an even keel save some differences here and there. The financial capability and wherewithal to execute the respective schemes if either one is chosen, is also exhibited by both the scheme proponents as evident from the earlier paragraphs. Both the scheme proponents also belong to the industry as to the one being carried by the company in liquidation. Thus a piquant situation arises. Thus armed with the wisdom gleaned from the precedents as cited above as well as a somewhat elaborate discussion which necessitates this Tribunal to address a problem which has been put in its lap for which a dynamic solution is required to be found without being too analytical and at the same time without losing track in any way the objectives of the Code for which it was framed including for the resolution of insolvency and re- organisation which includes within its ambit revival and restructuring within a speedier time frame for maximization of value of its assets of the company in liquidation. Let the scheme approved based on the voting method be placed before this Tribunal for its sanction within a period of 60 days from the date of this order. Application disposed off.

Issues Involved:
1. Dispensation of meetings of unsecured creditors and shareholders.
2. Approval of Scheme A or Scheme B.
3. Liquidation costs and their payment.
4. Role and decision-making authority of the liquidator versus the Committee of Creditors (CoC).
5. Constitution and role of the Stakeholders Committee.
6. Comparative analysis and evaluation of Scheme A and Scheme B.
7. Voting process and approval mechanism for the schemes.

Issue-wise Detailed Analysis:

1. Dispensation of Meetings:
The liquidator sought orders to dispense with the holding of meetings of unsecured creditors and shareholders for the approval of the scheme. The Tribunal noted that the liquidator did not seek dispensation for secured creditors' meetings. Given the CoC's favorable opinion on Scheme B, the liquidator argued that convening such meetings could be avoided to save time.

2. Approval of Scheme A or Scheme B:
Two schemes were proposed: Scheme A by M/s. Seshasayee Paper and Boards Ltd. (SPBL) and Scheme B by M/s. Sun Paper Mill Ltd. (SPML). The liquidator preferred Scheme A, citing asset maximization and liquidation cost coverage, while the CoC favored Scheme B due to quicker and unconditional disbursal of funds.

3. Liquidation Costs:
The liquidator emphasized that Scheme A provided full coverage for liquidation costs, including his fees, whereas Scheme B did not fully cover these costs. SPML later committed to covering all liquidation costs as per law.

4. Role and Decision-making Authority:
The liquidator argued that his decision should prevail over the CoC's opinion in liquidation matters, citing Section 35(2) of the IBC, 2016. However, the Tribunal found a paradox in the liquidator presenting both schemes for approval despite preferring Scheme A.

5. Constitution and Role of the Stakeholders Committee:
The Tribunal directed the liquidator to constitute a Stakeholders Committee as per Regulation 31A of the Liquidation Process Regulations, 2016. This committee would include authorized representatives of unsecured creditors, operational creditors, and shareholders, along with individual secured creditors.

6. Comparative Analysis of Schemes:
- Scheme A (SPBL): Proposed amalgamation with SPBL, addressing excessive debt and losses, and offering comprehensive settlement amounts. SPBL demonstrated financial capability and experience in turning around sick units.
- Scheme B (SPML): Proposed compromise/arrangement with creditors, focusing on quick revival and continuity of business. SPML committed to paying secured creditors immediately upon scheme approval and demonstrated financial feasibility.

7. Voting Process and Approval Mechanism:
The Tribunal directed both schemes to be resubmitted with modifications and upward revisions, if any, and placed before the Stakeholders Committee for voting. The voting process would follow the principles of Section 230 of the Companies Act, 2013, and the scheme receiving the highest affirmative votes would be approved. In case of a tie, additional voting would be conducted among creditors to break the tie.

Conclusion:
The Tribunal emphasized the need for a dynamic and pragmatic approach to resolve the issues, keeping in mind the objectives of the IBC, 2016, and the interests of all stakeholders. Both schemes were to be resubmitted and voted upon by the Stakeholders Committee, with the scheme receiving the requisite majority to be placed before the Tribunal for final approval. The application was disposed of with directions for the liquidator to approach the Tribunal for any further clarifications or directions.

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