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TMI Blog2019 (11) TMI 187X X X X Extracts X X X X X X X X Extracts X X X X ..... udicial or oppressive to any member or members or prejudicial to public interest. The essence of Sections 241 242 will be defeated if during the pendency of the petition, the Operational Creditors or Financial Creditors are allowed to trigger Corporate Insolvency Resolution Process itself. The Tribunal while dealing with the matter failed to notice the aforesaid fact. It is a fit case in which the Board of Directors should be allowed to take its own decision as to how it will meet its end for meeting the liabilities of the Operational Creditors / Financial Creditors and whether the liability is of one or other unit including Sonepat Unit and we, accordingly, allow the Board of Directors to take such decision to save the company from initiation of the Corporate Insolvency Resolution Process and not for other purpose. Impugned order set aside - appeal allowed. - Company Appeal (AT) No. 57 of 2019 - - - Dated:- 2-7-2019 - Mr. S.J. Mukhopadhaya, Chairperson and Mr. Bansi Lal Bhat Member (Judicial) For Appellants : Mr. Sudhir K. Makkar, Senior Advocate with Ms. Saumya Gupta, Advocate. For Respondents: Dr. U.K. Chaudh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orders passed by this Appel late Tribunal on 28th August, 2018 17th September, 2018. The reasons for filing the application have been spelt out as noticed by the Tribunal and set out below: - a. Sonepat Unit has posted a loss of ₹ 6.63 crores for FY 2017-18. b. Quarterly unaudited results for the quarter ending 30.06.2018 Sonepat Unit - Loss of ₹ 2.41 crores. c. Overal l f inancial condi tion of the company has been severely impacted due to heavy losses by Sonepat Unit . d. On instructions of the Board, ₹ 21.59 crores has been paid till 30.09.2O18 by Sahibabad unit to avoid the account of the company becoming NPA. Therefore Sahibabad unit is facing a liquidity crunch. e. The liabilities continue to mount on the company and the company is liable to pay nearly ₹ 32 crores to vendors due to the default of Sonepat unit . f. Owing to defaults of Sonep at Unit , vendors have now restricted supply raw materials to Sahibabad unit thereby causing a serious situation as presently Sahibabad unit is responsible for more than 90% of the total production of the company. g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Consortium Bankers for release of title documents of AST I , Atlas Auto and non -core assets under the charge of Sonepat Unit . The list of assets in respect of which release of title deeds is sought from the bank is as under: i. Atlas Steel Tube Industries , Bawal ii. Atlas Auto Industries , Rasol 7. Non-core assets of the company under the charge of Sonepat Unit was shown therein which includes Residential House , Bawal Factory , Rasoi Factory and Bhind- Malanpur Factory , as detailed below:- Sl. No. Property s type Address Area 1. Residential House 24-B, Model Town, Sonepat 792 sq. yard 2. Residential House 102-L, Sonepat 504 sq. yard 3. Residential House 137-L, Model Town, Sonepat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m the Sonepat Unit continues to be zero. It was further alleged that the petitioners (1st 2nd Respondents herein) have failed to furnish the requisite information sought by the Board of Directors and no information has been furnished regarding the outstanding liabilities to its suppliers. The information is necessary to prepare the defence in theproceedings initiated by Operational Creditors under the Insolvency and Bankruptcy Code, 2016 in NCLT, Chandigarh. The Sonepat Unit has not been able to clear its statutory liabilities later on liquidating the outstanding liabilities of suppliers. The Board of Directors has strongly felt that the only possible solution for the Respondent No. 1 company is to liquidate the non-core assets of the company so that additional funds could be generated and be utilized to stabilize the financial position which otherwise is getting adversely impacted. 9. Non-applicants/Petitioners (1st 2nd Respondents herein) despite the opportunity granted, did not file any reply and their counsel addressed the argument on the ground that the application is not maintainable as the relief claimed has already been declined in the earlier proc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n for issuance of direct ion. I t is whol ly unfair.Therefore, we are not inclined to grant any interim relief at this stage particularly when nothing has been placed on record to show that the applicant-respondent No. 1 company as such is unable to meet the liability of the Operational Creditors who have filed petitions under the Insolvency and Bankruptcy Code, 2016. 21. Mr. R.S Sun, learned senior counsel appearing for TDI Infratech Limited has submitted that one property at item No. 11 of the table may not be included as a part of the prayer made in this application as TDI Infratech Limited has acquired some interest in it. As we are dismissing the application the request made by Mr. Suri would not survive. We order accordingly. 11. With the aforesaid observations, the application was dismissed which is under challenge in this appeal. 12. For deciding the issue, it is desirable to notice the relevant background of the case as narrated by the Appellant and detailed below: 13. Late Rai Bahadur Janaki Dass Kapur had three sons, namely Sh. Bishambar Dass Kapur, Sh. Jaidev Kapur and Sh. Jagdish Kapur. It was considered expedient ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the territories of Malanpur Unit shall be divided equally and serviced by the other two units i.e. Sonepat and Sahibabad Unit . It also resolved that all the liabilities of Malanpur Unit shall be met out of sale of assets of Malanpur Unit / ASTI / Atlas Auto and the deficit if any shall be borne equally by Sonepat and Sahibabad Unit . It also resolved that pending sale/ liquidation of assets of Malanpur Unit , both Sonepat and Sahibabad Unit shall contribute a sum of ₹ 10 crores each to tide over the immediate liabilities which include statutory dues and bank liabilities to prevent any situation of the bank account of the company turning NPA . 16. The arbitration proceedings between the Kapur family members culminated into an award dated 1st November, 2014 passed by the Hon ble Sole Arbitrator. It is pertinent to mention that the Learned Arbitrator, in contradiction to his previous orders, directed division of the management, control and ownership of Appellant no. 1 Company. 17. After issuance of the arbitral award, 1st to 3rd Respondents herein, filed C.S. (OS.) No.3510 of 2014 before the Hon ble Delhi High Court inter alia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ide order dated 28th August, 2018 with part modification of the order dated 2nd August, 2018 passed by Tribunal, Principal Bench. The said order was corrected vide order dated 17th September, 2018. Relevant portion of which reads as follows: 14. By the impugned order, the Tribunal has kept certain resolution in abeyance and directed to continue with the operation of the two orders dated 24th August, 2015 and 7th September, 2015. Two of the resolutions of the Board of Directors dated 14 th December, 2017 and 24th February, 2018 have been kept in abeyance and the Board of Directors has been directed to facilitate the Sonepat Unit in production to achieve the optimum level. The Applicant/Petitioner No.1 (Respondent herein) has also been directed to furnish all details sought by the Board of Directors of the Company relating to fund flow from the Government order and utilization thereof. 15. Learned Senior Cousnel appearing on behalf of the Appellants submits that if the Respondents are allowed to sign the cheques, many of the cheques will be bounced, as already bounced and it may result into initiation of Corporate Insolvency Resolution Process again ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y of its representative already posted in the Sonepat Unit or may post any of its representative to ensure joint signatures on the cheque for payment in favour of workmen, employees, suppliers or raw materials, other creditors, electricity charges, water charges, tax etc. iii. Till Sonepat Unit achieve optimum level of production, it will be open to the Board of Directors of the Company to make available the products, such as cycles and other parts to Sonepat Unit from other units for meeting the demand and supply in the market which is under the control of Sonepat Unit . Sonepat Unit , in its turn, will keep an account of the products, such as cycles and other parts received from other units and after sale of such products will report the same to the Company as also the unit(s) from which the products such as cycles and its parts are supplied. The Sonepat Unit will not sell any product such as cycles and its parts supplied by other units on credit. The Sonepat Unit will transfer the amount generated from sale of product of other units to the unit concerned within 30 days of sale failing which, in default the present order passed by this Appellate Tribuna ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Unit in pursuance of the order dated 28 th August, 2018. The Board passed a resolution dated 29th August, 2018 directing the other unit to supply to Sonepat Unit . However, the 1 st Respondent asked the bicycles to be supplied at Marginal Cost vide communication dated 11th September, 2018 contrary to the terms of the order. An appropriate reply dated 12th September, 2018 was sent by the Board of Directors and another communication dated 18th September, 2018 was sent by Sahibabad Unit forwarding price lists, etc. 26. Therefore, according to the Appellant, the Tribunal erroneously observed that no material has been placed on record to establish that the Company has no funds. It is submitted that the Tribunal failed to take note of the following facts: a. Bank position as on 31st March, 2019. i. Sanctioned limit - ₹ 19 crores ii. Drawing power- ₹ 18.54 crores iii. Availed limits - ₹ 18.14 crores b. All mutual funds exhausted except for a small art fund of ₹ 50 lakhs which is sub judice. c. Payments to suppliers overdue, more than 60 days - ₹ 57 crores. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... liquidation of liabilities to the vendors in a phased manner and statutory liabilities pertaining to Sonepat unit. ₹ 12 crores 2. Sale of Bawal Land The land in question was earlier utilized for Atlas Steel Tube Industries which was shut down in 2014 and was being managed by Management Committee of Malanpur Unit . The permission for sale of the said asset was granted by the Tribunal vide order dated 12th August, 2018 in C.A. No. 842 (PB)/ 2018. Proposed utilization of the sale proceeds The amount likely to be realized through the sale of the said asset 35 crores Amount proposed to be paid to the consortium bankers as a condition for release of the title deeds of the said property as the same are held by the banks as collateral security for the financial assistance extended to the company 20 crores Amount liable to be paid back to M/s. AGR Steel Strips P. Ltd., towards refund of advance received by Atlas against proposed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Limited are wholly owned subsidiaries of Appellate No.1 Company. However, there is nothing on the record to suggest that Atlas Cycle (Haryana) Limited has any subsidiary company nor anything on the record that company in the name of Atlas Cycles (Sonepat) Limited , Atlas Cycles (Malanpur) Limited and Atlas Cycles (Sahibabad) Limited have been registered under the Companies Act or treated to be a subsidiary of the Appellant No.1 Company. The purpose of demerger of business pursuant to the Memorandum of Understanding has failed, as noticed in a preceding paragraph. Pursuant to the Memorandum of Understanding , the Arbitration Proceedings is initiated in which order of award was passed but was set aside by the Hon ble High Court and affirmed under Section 37 of the Arbitration Conciliation Act, 1996 . 31. Therefore, the aforesaid plea taken by 1st 2nd Respondents ( Petitioners before the Tribunal) also cannot be accepted as they had not filed any reply affidavit nor taken any plea that there are three separate subsidiary Companies as discussed above. If there are three different Companies, then Insolvency Proceeding will be initiated against one of them ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s board Resolution approval of sanction of the revised limits by the Banks. (v) However, the Board of Directors refused and instead wrote a letter dated 8th June, 2016 to the bankers, withdrawing the loan applications of the Sonepat Unit to choke the financial working of the Sonepat Unit . Furthermore, Board of Directors allowed Sahibabad Unit to avail short term loan of 20 crores against its non-core assets but refused to allow Sonepat to avail the same. Letters written to Board of Directors to avail bridge loan of ₹ 15 Crores but to no avail. 34. The Respondents have further taken plea that the Company Petition is pending before the Tribunal, Principal Bench and the matter is listed for hearing. The Company Petition will become infructuous if the Appellants are allowed to sell non-core assets of the Sonepat Unit . 35. It is submitted that the Sonepat Unit is seeking for a demerger of the Unit as per the Memorandum of Understanding and Board Resolutions . Non- Core Assets of the Sonepat Unit are the only assets of the Unit. The Board of Directors was permitted to sell only the Bawal Unit and the sale proceeds were to b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t only the Appellant No.1 Company will suffer but all the members including 1st 2nd Respondents and in such case, the Company Petition (preferred by 1st 2nd Respondents) will become infructuous. 41. In a petition under Sections 241-242 of the Companies Act, 2013 (earlier Sections 397-398 of the Companies Act, 1956), the Tribunal has power to pass interim order in terms of sub-section (4) of Section 242, which reads as follows: 242. Powers of Tribunal . ─ ..(4) The Tribunal may, on the application of any party to the proceeding, make any interim order which it thinks fit for regulating the conduct of the company s affairs upon such terms and conditions as appear to it to be just and equitable. 42. From the aforesaid provision, it is clear that the Tribunal can make any interim order which it thinks fit for regulating the conduct of the company s affairs upon such terms and conditions as appear to it to be just and equitable. 43. It is the wisdom of the Board of Directors to decide whether sale of non-core assets ought to be made or not. It was the duty of the Tribunal to notice that impending threat of an I B C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ublic interest. The essence of Sections 241 242 will be defeated if during the pendency of the petition, the Operational Creditors or Financial Creditors are allowed to trigger Corporate Insolvency Resolution Process itself. The Tribunal while dealing with the matter failed to notice the aforesaid fact. We are of the view that it is a fit case in which the Board of Directors should be allowed to take its own decision as to how it will meet its end for meeting the liabilities of the Operational Creditors / Financial Creditors and whether the liability is of one or other unit including Sonepat Unit and we, accordingly, allow the Board of Directors to take such decision to save the company from initiation of the Corporate Insolvency Resolution Process and not for other purpose. 47. In the result, the impugned order dated 14th February, 2019 is set aside. The appeal is allowed with aforesaid liberty. However, if the amount is utilized for any other purpose than meeting the liability of the Operational Creditors / Financial Creditors or for revival of the Sonepat Unit , it will be open to 1st 2nd Respondents to bring the aforesaid fact to the notice o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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