2020 (1) TMI 1458 - Tri - Insolvency and Bankruptcy

Restructuring arrangement - whether restructuring arrangement set out under section 230 can be seen as discharge of loan of the creditors because when rearrangement or restructuring of the Companies Act or compromise happens, it will be treated as a compromise under section 230, not as discharge of loan payable to the creditors? - HELD THAT - This Bench, on October 14, 2019 and October 25, 2019 in M. A. No. 697of 2019 passed an order directing this applicant to convene the meetings of the secured and unsecured creditors on November 25, 2019 and November 26, 2019 respectively. In compliance of the directions of the Tribunal, the applicant had convened the meetings of the secured and unsecured creditors on the schedule dates, whereby the amended scheme proposed by the M/s. First Step Ventures Ltd., for a total investment of ₹ 75 crores has been duly voted in favour by both secured and unsecured creditors, complying with threshold limit prescribed under the Companies Act, 2013 - the applicant has complied with the mandatory requirement of filing the certificate that the accounting treatment contained in the revised/ amended resolution plan, is in conformity with the accounting standards prescribed under section 133 of the Companies Act, 2013. As to post-dated cheques issued by the liquidator while running the hospital, the liquidator and the resolution applicant shall have reconciliation over the cheques issued by the liquidator. After reconciliation, the resolution applicant is bound to pay all post-dated cheques issued by the liquidator - Application disposed off

Summary

Issues Involved:
1. Approval of the scheme under section 230 of the Companies Act, 2013 during liquidation.
2. Objection by the dissenting financial creditor regarding the extinguishment of the right to proceed against the personal guarantee.

Detailed Analysis:

1. Approval of the Scheme under Section 230 of the Companies Act, 2013 During Liquidation:

The liquidator filed an application for approval of a scheme under section 230 of the Companies Act, 2013, during the liquidation period. The scheme was approved by the majority of the financial creditors, including State Bank of India and Bank of Baroda, but faced objections from the dissenting financial creditor, South Indian Bank, which held 2.43% of the secured debt. The scheme proposed by M/s. First Step Ventures Ltd. was voted in favor by an overwhelming majority of 97.58% of the secured creditors and 96.10% of the unsecured creditors, complying with the threshold limits prescribed under the Companies Act, 2013. The financial proposal included a total investment of INR 75 crores, with specific tranches and timelines for payments.

2. Objection by the Dissenting Financial Creditor:

The dissenting financial creditor, South Indian Bank, objected to a clause in the scheme that extinguished its right to proceed against the personal guarantee given by the promoter-director. The creditor argued that the scheme under section 230 of the Companies Act, 2013, should not affect its right to proceed against the personal guarantor, as this right is covered under section 31 of the Insolvency and Bankruptcy Code, 2016. The creditor also contended that it should be treated as a separate class since it did not have security over the immovable property of the corporate debtor.

The Tribunal addressed these objections by stating that the restructuring arrangement under section 230 should be seen as a compromise, not as a discharge of the loan payable to the creditors. The Tribunal clarified that the jurisdiction under section 230 of the Companies Act, 2013, is not dependent on any other provision of the Insolvency and Bankruptcy Code. The Tribunal also dismissed the argument that the dissenting creditor should be treated as a separate class, stating that under the Companies Act, there are only two classes of creditors: secured and unsecured.

Judgment:

The Tribunal dismissed the application of the dissenting financial creditor (M. A. No. 1425 of 2019) and allowed the application for the approval of the scheme (M. A. No. 1370 of 2019). The Tribunal emphasized that the objector cannot proceed against the guarantor with regard to the loan restructuring under section 230 of the Companies Act, 2013. The Tribunal also directed the resolution applicant to comply with the payment towards provident fund authorities and other financial obligations as outlined in the resolution plan. The liquidator was instructed to report compliance within one week, and the remuneration for the liquidator was confirmed as INR 2.5 lakhs per month until discharged from duties. The Tribunal noted that if the plan fails, creditors will resume their rights, including proceeding against the personal guarantees.