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2023 (4) TMI 1082 - AT - Companies LawOpportunity to be heard to ICA Lenders not provided - requirement of hearing of person concerned as is laid down in section 71(10) of the Companies Act, 2013 - Whether the ICA Lenders led by Bank of Baroda were entitled to be intervenor and be heard in the company petition filed by the Debenture Trustee and if they had a right to be heard, then whether the Impugned Order turning down the Intervention Application correct in law, and further Impugned Order-I which was passed without hearing the ICA Lenders liable to be set aside? HELD THAT - Section 71(10) of the Companies Act, 2013 uses the word may in the context when the Tribunal has to pass order on the application of any or all of the debenture holders or debenture trustee. Further, sub-section 10 of section 71 also lays down that the Tribunal may pass orders after hearing the parties concerned - the question of proceedings to be in personam or in rem is also made clear by the fact that in the Company that is facing financial stress and for which a resolution plan is under consideration, 23 debenture holders who are among those represented by the Debenture Trustee are also part of ICA Lenders, though a majority of the retail debenture holders are not signatories to the ICA. The contention of the Respondent Debenture Trustee is that the requirement of sub-section 10 of Section 71 of the Companies Act, 2013 is that the Tribunal should pass an order only keeping in view its satisfaction and what is necessary to safeguard interest of the company or debenture holders. He has contended that the issue of public interest and financial condition of the company are not necessary factors to be look into by the Tribunal while passing the order - While considering the above argument of the Learned Counsel for the Respondent-Debenture Trustee, we note that the provision under section 71 (3) and section 71(10) of the Companies Act, 2013 stipulates that NCLT shall, before making any order, give a reasonable opportunity of being heard to the Company and person concerned in the matter. Rule 73(3) and Rule 73(4) of the NCLT Rules, 2016 which are applicable for an application under section 71(10) of the Companies, 2013 provide that Tribunal shall, before making any order under this rule, give an reasonable opportunity of being heard to Company or any other person interested, in the matter. It is quite clear from a reading of sub-rule (3) and sub-rule (4) of Rule 73 that the company is an important party because the company has to redeem the debentures and pay the interest on the principal amount. The Company s financial condition and health would, therefore, also become relevant factors while hearing an application under section 71(10). The ICA Lenders, who have all signed the Inter Creditor Agreement, have also taken steps for financial rejuvenation and revitalization of the Company through a resolution plan - the ICA Lenders are also important parties insofar as financial resolution of the Company is concerned, and therefore they should be afforded an opportunity to be heard in the company petition as the redemption of NCDs shall have an impact on the financial condition of the Company and would deeply affect the implementation of the resolution plan, which is for resolution of the Company. Thus, the NCLT has denied an opportunity to be heard to ICA Lenders on the ground that insofar as section 71(10) of the Companies Act, 2013 is concerned, they do not have a right to be heard - this is an incorrect reading of the requirement of hearing of person concerned as is laid down in section 71(10) of the Companies Act, 2013 and any other person interested in the matter as required in Rule 73(3) and 73(4) of the NCLT Rules, 2016 - in view of public interest as is stipulated in Rule 74(4) and the involvement of public money in the Company, though the public sector banks, public interest also demands that ICA Lenders be given opportunity of hearing - the Impugned Order-II dated 27.5.2021 is incorrect and is set aside. The Impugned Order-I dated 21.6.2021 which was passed by the NCLT suffers from the infirmity that ICA Lenders were not afforded an opportunity to be heard while passing Impugned Order-I - the matter is remanded to the NCLT, Mumbai - Appeal allowed by way of remand.
Issues Involved:
1. Whether the ICA Lenders led by Bank of Baroda were entitled to be intervenors and be heard in the company petition filed by the Debenture Trustee. 2. Whether the Impugned Order turning down the Intervention Application was correct in law. 3. Whether the Impugned Order-I, which was passed without hearing the ICA Lenders, was liable to be set aside. Summary: Issue 1: Entitlement of ICA Lenders to be Intervenors The ICA Lenders, led by Bank of Baroda, argued that they should be considered "persons interested" under Section 71(10) of the Companies Act, 2013, and Rule 73(3) and 73(4) of the NCLT Rules, 2016. They claimed that their financial interests and the resolution plan for RHFL necessitated their involvement. The Tribunal noted that 20% of the debenture holders had signed the ICA, indicating an interest in the successful resolution of RHFL. The Tribunal concluded that ICA Lenders should be afforded an opportunity to be heard, as the redemption of NCDs would impact the financial condition of RHFL and the implementation of the resolution plan. Issue 2: Correctness of Impugned Order-II The Tribunal found that the NCLT's denial of an opportunity to be heard to ICA Lenders was an incorrect reading of the requirement of hearing "persons concerned" under Section 71(10) and "any other person interested in the matter" under Rule 73(3) and 73(4) of the NCLT Rules, 2016. The Tribunal emphasized the importance of public interest and the involvement of public money through public sector banks, concluding that ICA Lenders should have been given an opportunity for hearing. Consequently, Impugned Order-II dated 27.5.2021 was set aside. Issue 3: Setting Aside Impugned Order-I The Tribunal noted that Impugned Order-I dated 21.6.2021 was passed without affording an opportunity to the ICA Lenders to be heard. This procedural infirmity necessitated setting aside Impugned Order-I. The case was remanded to the NCLT, Mumbai, to hear the matter afresh after allowing the Intervention Application of ICA Lenders led by Bank of Baroda. The NCLT was directed to pass a reasoned order considering the contentions and arguments of all parties, including the ICA Lenders. Conclusion: The appeal was allowed, and the matter was remanded to the NCLT, Mumbai, with directions to hear the ICA Lenders and pass a reasoned order. The parties were directed to appear before the NCLT, Mumbai, on 16th May, 2023. There was no order as to costs.
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