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2022 (3) TMI 698 - AT - Insolvency and BankruptcyConsideration of Scheme of Compromise or Arrangement - no steps were directed to be taken with regard to the auction of the assets of the Corporate Debtor - Section 230 of Companies Act - HELD THAT - Section 230(2)(c) uses expression any scheme of corporate debt restructuring consented to by not less than seventy-five per cent of the secured creditors in value . Sub-clause (c) of sub-section (2) of Section 230 is attracted when there is a scheme of corporate debt restructuring. The expression used in sub-clause (c) is corporate debt restructuring . Debt restructuring is well known concept. Debt given by a lender can be restructured by the lender by any scheme issued by the lender or Reserve Bank of India or Central Government. Debt restructuring scheme which are issued by the Reserve Bank of India or Central Government from time to time are to mitigate the hardship of the borrowers. When lenders restructure the debt i.e. permit the borrower to make the payment debt in different time schedule or different instalment as per any Scheme, the said will be debt restructuring. The statutory scheme required consent by not less than 75% of the secured creditors for such debt restructuring which indicate that debt restructuring is to be consented by specific majority of secured creditors and it is secured creditors who are generally banks and the financial institution who can restructure the debt. Obligation to obtain the consent of 75% of the Creditors is on the person who proposes the Scheme. When the Scheme was submitted by Respondent Nos.2 and 3 to the Liquidator, the Liquidator was required to intimate the Respondent Nos.2 and 3 to obtain consent by 75% of creditors and it was for Respondent Nos. 2 and 3 to present the Scheme before Creditors and impress them to give their consent - The Liquidator in the present case, after holding Respondent Nos.2 and 3 to be eligible to submit the Scheme on 21st October, 2021, placed the Scheme before Stakeholder Consultation Committee on the next day, that is, 22nd October, 2021 and refused Respondent Nos.2 and 3 to present and clarify the Scheme before the Stakeholder Consultation Committee - no opportunity was given to Respondent Nos.2 and 3 to explain and clarify their Scheme before Financial Creditors and Members of Stakeholder Consultation Committee on 22nd October, 2021, on which date the meeting was convened by the Liquidator. Respondent Nos.2 and 3 are entitled to an opportunity to place and explain their revised Scheme before Financial Creditors and it is for the Financial Creditors to consider the Scheme for purposes of giving consent as contemplated by Section 230, sub-section (2) (c) of the Companies Act. The conduct of liquidator indicates that liquidator herself never wanted to give any opportunity to the Respondent No.2 to appear before the Stakeholders Consultation Committee and to explain his Scheme. Had liquidator wanted to give any opportunity and she wanted to obtain advice of the Stakeholders Consultation Committee on the above, she ought to have put the item before Stakeholders Consultation Committee first to consider before putting their Scheme for consideration. The hurried calling for the meeting on 22.10.2021, when she decided on 21.10.2021 that Respondent Nos. 2 and 3 are eligible, then not providing opportunity to Respondent Nos. 2 and 3 to explain the Scheme before the Financial Creditors or other stakeholders indicate that the liquidator never wanted the Scheme to be considered and she took all steps to get the Scheme rejected so that she may proceed with the auction which she has already fixed for 25.10.2021. The order passed by the Adjudicating Authority is affirmed - Respondent Nos.2 and 3 are allowed one month s time from this date to submit the revised Scheme along with an affidavit indicating the consent of Financial Creditors as contemplated by Section 230, sub-section 2(c) of the Companies Act, 2017, if any.
Issues Involved:
1. Liquidator's consideration of the Scheme under Section 230 of the Companies Act, 2013. 2. Eligibility of Respondent Nos. 2 and 3 to submit the Scheme. 3. Role and advice of the Stakeholders Consultation Committee. 4. Compliance with Section 230(2)(c) of the Companies Act, 2013. 5. Procedural fairness and natural justice. 6. Validity of the auction process and subsequent actions. Issue-wise Detailed Analysis: 1. Liquidator's Consideration of the Scheme: The Liquidator was directed by the Adjudicating Authority to consider the Scheme under Section 230 of the Companies Act, 2013 submitted by Respondent Nos. 2 and 3. The Liquidator initially declared Respondent Nos. 2 and 3 ineligible but later reversed this decision. The Liquidator then placed the Scheme before the Stakeholders Consultation Committee, which rejected it. However, the Tribunal noted that the Liquidator's reliance on the Stakeholders Consultation Committee's advice was misplaced and not in accordance with the statutory scheme. The Liquidator should have independently assessed the Scheme and filed it before the Tribunal for approval. 2. Eligibility of Respondent Nos. 2 and 3: The Liquidator initially declared Respondent Nos. 2 and 3 ineligible under Section 29A but later reversed this decision. The Tribunal found that the Liquidator's actions were inconsistent and lacked proper consideration. The Tribunal emphasized that once the Liquidator declared Respondent Nos. 2 and 3 eligible, there was no impediment to considering the Scheme. 3. Role and Advice of the Stakeholders Consultation Committee: The Tribunal highlighted that the Stakeholders Consultation Committee's role is advisory and not binding on the Liquidator. The Liquidator's decision to place the Scheme before the Committee and rely on its advice was incorrect. The Tribunal clarified that the Committee's advice should be sought by a vote of not less than 66% of the representatives present and voting, and it is not binding on the Liquidator. 4. Compliance with Section 230(2)(c) of the Companies Act, 2013: Section 230(2)(c) requires any scheme of corporate debt restructuring to be consented to by not less than 75% of the secured creditors. The Tribunal agreed with the Appellant's contention that the Scheme proposed by Respondent Nos. 2 and 3 was a form of debt restructuring and required the consent of 75% of the secured creditors. The Liquidator should have informed Respondent Nos. 2 and 3 to obtain this consent. 5. Procedural Fairness and Natural Justice: The Tribunal found that the Liquidator did not provide Respondent Nos. 2 and 3 a fair opportunity to present and clarify their Scheme before the Stakeholders Consultation Committee. The hurried manner in which the Liquidator convened the meeting and the subsequent rejection of the Scheme without giving Respondent Nos. 2 and 3 a chance to explain was against the principles of natural justice. 6. Validity of the Auction Process and Subsequent Actions: The Tribunal noted that the auction process and the issuance of the Sale Certificate to the Appellant were conducted while the interim order was in place, which stayed the Adjudicating Authority's order. The Tribunal found that the Liquidator's actions were inappropriate and emphasized that the interim order made the Adjudicating Authority's order inoperative but did not quash it. Therefore, the Liquidator should have sought clarification before proceeding with the auction and subsequent actions. Conclusion: The Tribunal affirmed the Adjudicating Authority's order dated 01.11.2021 and discharged the interim order dated 23.11.2021. Respondent Nos. 2 and 3 were given one month to submit a revised Scheme along with the requisite consent of the Financial Creditors. The Adjudicating Authority was directed to finally decide IA No. 314 of 2021 and pass consequential orders. The Tribunal emphasized the need for proper consideration of the Scheme and adherence to statutory requirements and principles of natural justice.
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