2020 (10) TMI 230 - Tri - Companies Law

Oppression and mismanagement - approval of sale of shares - Sections 241 and 242 of the Companies Act, 2013 - HELD THAT - The Resolution of the IL FS and its group companies was ordered by the Hon ble NCLAT and a Resolution framework has been approved. Though the Resolution of the Company and its group entities is not strictly under the Insolvency and Bankruptcy Code, 2016 (the Code) the principle underlying the Code for Corporate Resolution of a Company is required to be kept in mind while going about the Resolution of the IL FS and its group entities. The purpose of Resolution is to see that the Company and its assets are not wasted under an inefficient management. The Resolution aims at putting the Company and its group entities in better hands - True it is that the provisions of the Code would not be strictly applicable in the instant case, but the underlying object and principle thereof, in resolving a debt-ridden Corporate Debtor, cannot be lost sight of. The adherence to specific timeline for resolution is the essence, which in effect would bring about successful resolution of a beleaguered Company, like CPG or for that matter other entities in the IL FS conglomerate. The UoI represented by the Regional Director, MCA (WR), Mumbai has no objection to the divestment of IL FS shares in CPG, as the same has been done in accordance with the approved Resolution Framework. On hearing the counsel for the Applicant in CA No. 1011 of 2020 as well as the Regional Director and having perused the pleadings and the documents attached thereto, we are satisfied and of the considered view that the sale of stake of IL FS (59.18%) in CPG has been done within the Resolution Framework and the same needs to be approved and recorded. Application disposed off.

Issues Involved:
1. Allegations of mismanagement in IL & FS.
2. Supersession of IL & FS Board and appointment of a new Board.
3. Moratorium on coercive actions against IL & FS.
4. Resolution Framework for IL & FS and its group companies.
5. Sale of IL & FS shares in CPG-BPN Services Private Limited.
6. Delay in submission of Expression of Interest (EoI) by the Applicant.
7. Approval and implementation of the Share Purchase Agreement (SPA).

Detailed Analysis:

Allegations of Mismanagement in IL & FS:
The Union of India (UoI) filed CP No. 3638 of 2018 against Infrastructure Leasing and Financial Services Ltd (IL & FS) under Sections 241 and 242 of the Companies Act, 2013, alleging mismanagement within the company.

Supersession of IL & FS Board and Appointment of a New Board:
The Tribunal superseded the Board of Directors of IL & FS by an order dated 01/10/2018 and constituted a new Board with six Directors to take over the affairs of the Company. The new Board was directed to furnish a roadmap for consideration of the Tribunal.

Moratorium on Coercive Actions Against IL & FS:
The Tribunal declined to order a moratorium in respect of IL & FS group by an order dated 12/10/2018. However, the Hon’ble NCLAT by an order dated 15/10/2018 granted an interim stay against any coercive action by the creditors against IL & FS and its group entities.

Resolution Framework for IL & FS and Its Group Companies:
The new Board prepared periodical progress reports and proposed a Resolution Framework in the 3rd Progress Report dated 17/12/2018. The Hon’ble NCLAT observed that the process required to be followed was similar to the ‘Corporate Insolvency Resolution Process’ (CIRP) and allowed the IL & FS Board to proceed with the matter in the absence of a Committee of Creditors (CoC).

Sale of IL & FS Shares in CPG-BPN Services Private Limited:
IL & FS issued a notice dated 11/11/2019 inviting Expression of Interest (EoI) for the sale of its 59.18% equity shares in CPG-BPN Services Private Limited (CPG). The Applicant in CA No. 4127 of 2019 submitted an EoI after the deadline and requested condonation of delay and consideration on merits.

Delay in Submission of Expression of Interest (EoI) by the Applicant:
The Applicant submitted the EoI on 10/12/2019, which was rejected by the Financial Transaction Advisors (FTAs) due to late submission. The Applicant contended that it has market goodwill and is best suited to acquire the equity shares in CPG. However, the Tribunal found no sufficient cause for the delay and rejected the Applicant's plea.

Approval and Implementation of the Share Purchase Agreement (SPA):
The IL & FS filed CA No. 1011 of 2020 seeking approval for the sale of CPG shares to the successful bidder, Vision Plus Security Control Private Limited. The sale process was conducted transparently, and the bid was approved by the Committee of Creditors (CoC) with a 75.46% vote. The Tribunal approved the sale and implementation of the SPA, noting that the process adhered to the approved Resolution Framework.

Conclusion:
The Tribunal rejected CA No. 4127 of 2019, filed by the Applicant seeking condonation of delay in submitting the EoI and participation in the sale process. CA No. 1011 of 2020, seeking approval for the sale of IL & FS shares in CPG to Vision Plus Security Control Private Limited, was allowed. The sale process was found to be in compliance with the Resolution Framework, and the Tribunal ordered the implementation of the SPA. There was no order as to costs.

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