2024 (8) TMI 998 - AT - Companies Law

Approval of the Scheme of Arrangement for the revival of the Corporate Debtor under section 230 read with Section 66 of the Companies Act, 2013 and Regulation 2-B of the IBBI (Liquidation Process) Regulations 2016 - whether Regulation 37(1) and (2) of the LODR would apply to the Scheme submitted by the Liquidator under Section 230 of the Companies Act read Regulation 2B of the Liquidation Process Regulations? HELD THAT - SEBI has chosen to exempt the requirement of seeking NOC from stock exchanges for any restructuring proposal by way of a resolution plan under Section 31 of the Code. This is in accordance with the principle the CIRP process under the Code must be carried out in a time-bound manner under the supervision of one authority i.e. the Ld. NCLT. Pertinently, when the amendment was carried out, the concept of schemes of arrangement for revival of companies in liquidation was not statutorily recognized under the Code. There was no specific provision under the Code or under the Liquidation Process Regulations that permitted such a scheme of revival. Admittedly, schemes for revival of companies in liquidation was prevalent under the old Companies Act, 1956 and had been recognized by the Hon ble Supreme Court in MEGHAL HOMES (P.) LTD. VERSUS SHREE NIWAS GIRNI KK. SAMITI 2007 (8) TMI 447 - SUPREME COURT . However, it was not clear as to whether the same would also apply to a company undergoing liquidation under the Code. Thus, it can be safely stated that when SEBI carried out the amendment to various regulations including the LODR in May 2018, it did not have in its contemplation the concept of a scheme for compromise or arrangement for revival of a company in liquidation. The scheme in question in the present matter is akin to a Resolution Plan under Section 31 of the Code and it complies with the requirement of Resolution Plan under Section 30(2) of the Code and Regulation 37 and 38 of IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016. The scheme contemplates full payment of CIRP and liquidation cost, dues of workmen, payment of settlement value to creditors, extinguishment of all liabilities filed or not filed/admitted or not admitted, ouster of the erstwhile promoters, inducting of the acquirers as new promoters, constitution of monitoring committee, payment of EMD and performance security etc. - The Courts have time and again held that every effort must be made to revive the business of the company as the same is in the interest of all the stake holders. Admittedly till date no objection has been raised by BSE on the merits of the Scheme, which offers Rs. 52.3 Crore for the Corporate Debtor (i.e. 3 times offers made by way of rejected resolution plans and higher than liquidation value of the Corporate Debtor). Further, the Stock Exchange has the opportunity to place before Ld. NCLT its objections, if any, to the Scheme of Arrangement in response to the notice issued to it prior to final approval of the scheme. The Impugned Order dated 4th April 2024 is set aside - prior NOC from stock exchanges under Regulation 37(1)(2) of the LODR is not required for schemes for revival of companies undergoing liquidation under the Code - Appeal allowed.

Summary

Issues Involved:
1. Applicability of Regulation 37(1) and (2) of the LODR to the Scheme submitted by the Liquidator under Section 230 of the Companies Act.
2. Applicability of Regulation 37(7) of the LODR to a Scheme for revival of a company in liquidation.
3. Requirement of a No-Objection Certificate (NOC) from the Bombay Stock Exchange (BSE) for the Scheme of Arrangement.

Issue-wise Detailed Analysis:

1. Applicability of Regulation 37(1) and (2) of the LODR to the Scheme submitted by the Liquidator under Section 230 of the Companies Act:

The Tribunal held that Regulation 37(1) and 37(2) of the LODR mandate a 'listed entity' or 'company' to obtain a NOC from the stock exchanges. However, in cases of companies in liquidation, the scheme of arrangement is filed by the liquidator, not the company. Section 230(1) of the Companies Act treats the liquidator as separate and distinct from the company. Therefore, the rigors of Regulation 37(1) and 37(2) of the LODR do not apply to the liquidator. The Tribunal emphasized that the liquidator is a separate category of person who can file a scheme before the NCLT, and thus, the liquidator is not bound by the requirements imposed on the company under Regulation 37(1) and 37(2).

2. Applicability of Regulation 37(7) of the LODR to a Scheme for revival of a company in liquidation:

The Tribunal noted that Regulation 37(7) of the LODR exempts the requirement of seeking a NOC from stock exchanges for restructuring proposals approved as part of a resolution plan by the NCLT under Section 31 of the Insolvency and Bankruptcy Code (IBC). The Tribunal held that a scheme of arrangement for revival of a company in liquidation is also a 'restructuring proposal' and contains similar attributes to a resolution plan under Section 31 of the IBC. Both modes of revival operate in a similar continuum and deserve equal treatment. Therefore, the exemption provided in Regulation 37(7) should also apply to schemes of arrangement submitted under Section 230 of the Companies Act read with Regulation 2-B of the Liquidation Process Regulations.

3. Requirement of a No-Objection Certificate (NOC) from the Bombay Stock Exchange (BSE) for the Scheme of Arrangement:

The Tribunal observed that under the Companies Act, there is no provision mandating companies to obtain a prior NOC from stock exchanges for a scheme of arrangement. Section 230(5) of the Companies Act only contemplates notice to the stock exchanges after the scheme has been filed with the Tribunal. The requirement of giving notice to the stock exchanges has been duly complied with by the liquidator. The Tribunal also referred to the judgment in Pentemedia Graphics Limited v. The Bombay Stock Exchange, which held that the requirement of a NOC from stock exchanges is not mandatory for the approval of a scheme and is only required for continued listing of the company. Therefore, the Tribunal concluded that there is no requirement for a prior NOC from the stock exchanges or SEBI before the scheme is filed before the NCLT.

Conclusion:

The Tribunal set aside the Impugned Order dated 04.04.2024 and held that a prior NOC from stock exchanges under Regulation 37(1) and (2) of the LODR is not required for schemes for the revival of companies undergoing liquidation under the IBC. The Tribunal also directed the NCLT to proceed with hearing the scheme on merits without insisting on a prior NOC from the stock exchanges and to dispose of the same expeditiously, preferably within four weeks. The appeal was allowed, and pending applications, if any, were closed.