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2021 (4) TMI 732 - AT - Insolvency and BankruptcyValidity of Liquidation Proceedings against Corporate Debtor - Appellant claims that the Liquidator instead of reviving the Company through Settlement under Section 230 of the Companies Act, 2013 sought to close the business of the Company - Appellant is claiming that the Liquidator should have taken steps to sell the assets of the Corporate Debtor as a going concern. HELD THAT - When present matter is appreciated it is apparent that the Appellant and the management concerned who brought about the situation where the three companies are in Liquidation is trying to take over coming up with the scheme where there is no infusion of additional funds and the liabilities are sought to be discharged in the name of amalgamation. It is not in tune with expectations of a Resolution Plan under IBC. At the time of arguments, now effort is being made to take benefit of Section 240A of IBC calling upon this Tribunal to go into the definitions of Micro, Small and Medium Enterprise and hold the Company to be Micro or Medium Industry. We however find that the caution recorded by the Hon ble Supreme Court is important. We have noticed the worry recorded of Insolvency Law Committee. We can see the effect of our intervention in importing Section 230 of Companies Act, into Liquidation stages under IBC. There are simply delays. In the present matter, we need not decide the question of Section 29A of IBC. Alternatively, even if the said Section was to be considered, although the Learned Counsel for the Appellant is arguing that this Court should record finding on Micro, Small and Medium Enterprises on the basis of definition in the MSME Act, and records of the three Companies, we decline to go into those details in the absence of memorandum under MSME Act. When we find that it is not necessary for us to pursue Section 230 of the Companies Act at the stage of Liquidation, the same not being part of Procedure of IBC when the Corporate Debtor is in Liquidation, both the Appeals must fail, not having substance in the contentions raised - the appeal also needs to be dismissed as the Appellant is pushing forward a scheme of amalgamation compromise and arrangement for three companies which are already in Liquidation under IBC. Appeal dismissed.
Issues Involved:
1. Liquidation proceedings against Corporate Debtor. 2. Liquidator's steps to revive the company under Section 230 of the Companies Act, 2013. 3. Sale of spare parts and its impact on the company's substratum. 4. Appellant's eligibility under Section 29A of the Insolvency and Bankruptcy Code (IBC). 5. Application of Section 240A of IBC regarding Micro, Small, and Medium Enterprises (MSME). 6. Delay in liquidation proceedings due to the invocation of Section 230. 7. Harmonious construction of IBC and Companies Act, 2013. Detailed Analysis: 1. Liquidation Proceedings Against Corporate Debtor: The Appellant, a promoter and director of the Corporate Debtor, contested the Liquidator's actions to close the business instead of reviving it through a settlement under Section 230 of the Companies Act, 2013. The liquidation order was passed on 12th September 2017, and the Liquidator issued a notice for the sale of spare parts at a low price, proposing an e-auction on 16th August 2019. The Appellant's application against this action was rejected by the National Company Law Tribunal (NCLT), Chandigarh, leading to the current appeal. 2. Liquidator's Steps to Revive the Company Under Section 230 of the Companies Act, 2013: The Appellant argued that the Liquidator did not take steps to ensure a scheme under Section 230 of the Companies Act, 2013, despite a stay order from the Tribunal on 29th August 2019. The Appellant proposed a scheme for amalgamation/merger, compromise, and arrangement of all creditors, which was rejected by the NCLT on the grounds that the Appellant was ineligible under Section 29A of the IBC. 3. Sale of Spare Parts and Its Impact on the Company's Substratum: The Appellant claimed that the sale of spare parts would lead to the loss of the company's substratum as the parts were old. The Tribunal noted that the spare parts related to the period before 9th March 2017 and rejected the Appellant's contention, stating that the sale would not affect the company's substratum. 4. Appellant's Eligibility Under Section 29A of the Insolvency and Bankruptcy Code (IBC): The NCLT rejected the Appellant's scheme proposal, holding that the Appellant was ineligible under Section 29A of the IBC. The Tribunal emphasized that the prohibition in Section 29A and Section 35(1)(f) of the IBC must also apply to a scheme of compromise or arrangement under Section 230 of the Companies Act, 2013, when the company is undergoing liquidation under the IBC. 5. Application of Section 240A of IBC Regarding Micro, Small, and Medium Enterprises (MSME): The Appellant argued that the companies were either Micro or Medium Enterprises under the MSME Act, 2016, and thus eligible for certain benefits. However, the Tribunal found that the Appellant did not have the necessary memorandum or certificate from government authorities to prove this status. The Tribunal declined to go into the details of the MSME classification in the absence of such documentation. 6. Delay in Liquidation Proceedings Due to the Invocation of Section 230: The Tribunal noted that considerable delay and erosion of value occurred due to efforts to push in provisions of Section 230 of the Companies Act at the stage of liquidation. The Tribunal emphasized the need to avoid such delays and adhere to the IBC framework. 7. Harmonious Construction of IBC and Companies Act, 2013: The Tribunal referred to the Supreme Court's judgment in "Arun Kumar Jagatramka Vs. Jindal Steel and Power Ltd," highlighting the need for a harmonious construction between the IBC and the Companies Act, 2013. The Supreme Court observed that while Section 230 is wider in its ambit, it must be read in harmony with the IBC when the company is undergoing liquidation under the IBC. Conclusion: The Tribunal dismissed both appeals, emphasizing that the Appellant's scheme of amalgamation, compromise, and arrangement was not in tune with the expectations of a resolution plan under the IBC. The Tribunal also noted that it was unnecessary to pursue Section 230 of the Companies Act at the stage of liquidation, as it is not part of the IBC procedure. The interim orders dated 29th August 2019 were withdrawn, and no order as to costs was made in both appeals.
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