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2019 (9) TMI 590 - AT - Insolvency and BankruptcyLiquidation order - Financial Creditor - section 5(7) read with Section 5(8) of the I B Code - HELD THAT - Similar issue fell for consideration before this Appellate Tribunal in Y. SHIVRAM PRASAD AND ASSET RECONSTRUCTION COMPANY (INDIA) LTD. VERSUS S. DHANAPAL ORS. AND SERVALAKSHMI PAPER LTD. ORS 2019 (5) TMI 386 - NATIONAL COMPANY LAW APPELLATE TRIBUNAL, NEW DELHI where it was held that The liquidator is required to act in terms of the aforesaid directions of the Appellate Tribunal and take steps under Section 230 of the Companies Act. If the members or the Corporate Debtor or the creditors or a class of creditors like Financial Creditor or Operational Creditor approach the company through the liquidator for compromise or arrangement by making proposal of payment to all the creditor(s), the Liquidator on behalf of the company will move an application under Section 230 of the Companies Act, 2013 before the Adjudicating Authority i.e. National Company Law Tribunal, Chennai Bench. We direct the Liquidator to follow the provisions of Sections 35,37,38, 39 and 40 of the I B Code and decide the claim. Thereafter, it will ensure that instead of liquidating the assets of the Corporate Debtor steps are taken for Arrangement / Scheme to frame u/s 230 of the Companies Act, 2013. If Promoters / Members of the Corporate Debtors including the Appellant give any proposal for entering into an Agreement or Scheme in terms of Section 230 of the Companies Act, 2013 or any other Creditors, the liquidator is required to act in accordance with the directions of this Appellate Tribunal in Y. Shivram Prasad Vs. S. Dhanapal Ors. The Liquidator in the meantime will also ensure that the Corporate Debtor remains a going concern and the work do not suffer. It will make payment of salary and wages to the officers, employees and workmen of the Corporate Debtor and also to the suppliers of goods, services, electricity charges, water charges etc. Appeal disposed off.
Issues Involved:
1. Definition of 'Financial Creditor' 2. Allegation of Fraud in Agreement 3. Order of Liquidation 4. Settlement and Arrangement under Section 230 of the Companies Act, 2013 5. Role and Responsibilities of the Liquidator Detailed Analysis: 1. Definition of 'Financial Creditor': The main plea taken by the Appellant was that the 1st Respondent, an allottee of a flat, does not come within the meaning of 'Financial Creditor' as defined under Section 5(7) read with Section 5(8) of the Insolvency and Bankruptcy Code (I&B Code). However, this submission was rejected based on the decision of the Appellate Tribunal in "Nikhil Mehta and Sons Vs. AMR Infrastructure Ltd." and the explanation below Section 5(8), which clarifies that an allottee of a flat is considered a 'Financial Creditor'. 2. Allegation of Fraud in Agreement: The Appellant contended that the Agreement dated 26th June 2014 was obtained by fraud. However, this plea was not supported by evidence, and thus, the tribunal was not inclined to accept this argument. The tribunal noted that more than 270 days had passed, and in the absence of any valid Resolution Plan, an order of liquidation had been passed on 28th February 2018. 3. Order of Liquidation: The Appellant challenged the order of liquidation dated 28th February 2018 in another appeal. The tribunal noted that the Appellant/Promoter intended to settle the matter and propose an Arrangement/Scheme under Section 230 of the Companies Act, 2013. However, the Liquidator was not accepting this proposal nor had decided the claims of each creditor. The tribunal held that this could not be a ground to interfere with the liquidation order. 4. Settlement and Arrangement under Section 230 of the Companies Act, 2013: The tribunal referred to similar issues in "Y. Shivram Prasad Vs. S. Dhanapal & Ors." and "S.C. Sekaran v. Amit Gupta & Ors." where it was held that during the liquidation process, steps must be taken for the revival and continuation of the 'Corporate Debtor' by protecting it from its management and from a corporate death by liquidation. The tribunal emphasized that the primary focus of the legislation is to ensure the revival and continuation of the corporate debtor, not merely to serve as a recovery mechanism for creditors. The Liquidator is required to take steps under Section 230 of the Companies Act, 2013, to propose a compromise or arrangement with creditors and members. 5. Role and Responsibilities of the Liquidator: The tribunal directed the Liquidator to proceed according to Sections 35, 37, 38, 39, and 40 of the I&B Code and to ensure that instead of liquidating the assets of the 'Corporate Debtor', steps are taken for an Arrangement/Scheme under Section 230 of the Companies Act, 2013. The Liquidator must verify claims, take custody and control of all assets, and carry on the business for beneficial liquidation. The Liquidator should also ensure that the 'Corporate Debtor' remains a going concern and that work does not suffer, including making payments of salaries, wages, and other operational costs. The tribunal concluded by directing the Registrar, NCLAT, to hand over the Bank Guarantee deposited by the Appellant to him upon identification by his counsel. The appeal was disposed of with these observations and directions, with no costs awarded.
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