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TMI Blog2021 (11) TMI 24X X X X Extracts X X X X X X X X Extracts X X X X ..... atisfies the affirmative vote requirement. There is a specific distinction between an affirmative vote and mere consent. Affirmative vote matters provided in AoA generally to protect the rights of minority shareholders. Mere consent or presence of nominee director of NSL cannot equated with the affirmative vote as provided in clause 107 of AoA - on 30.03.2017 without affirmative vote of nominee director of NSL Board resolution was passed for filing the application under Section 10 of IBC. Such application is not maintainable for want of affirmative vote of nominee director of NSL. The application under Section 10 filed by the VR Chary the Chief Financial Officer of NDSL was not maintainable. Whether the appeal against the order of admission is barred by limitation? - HELD THAT:- The order of admission dated 20.09.2017 had no legal existence. Therefore, such order can be challenged at any time even beyond the prescribed period of limitation - the Appeal is time barred such defence is not maintainable. Whether material irregularity committed by RP in conducting the CIRP of the Corporate Debtor? - HELD THAT:- In the present case the publication in the newspapers was mad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yderabad have filed the Appeal against the order of liquidation against NDSL, Delta Paper Mills Ltd. (DPML) and Financial Creditors of the NDSL. When this Appeal came up for hearing on 24.07.2019 before this Appellate Tribunal, the Appellants requested to allow them to implead Nizam Sugars Ltd as Appellant No. 3 and also allow to challenge the order of initiating CIRP under Section 10 of the IBC. This Tribunal has allowed both the prayers however allowed 10 days time to file the Appeal, then on 07.08.2019the Appellants have filed CA (AT) (Ins) No. 818 of2019. 3. Brief facts of the case are that M/s Nizam Sugars Ltd. (NSL) [98% shares owned by the erstwhile State of Andhra Pradesh] was incorporated and established for running the Nizam Sugars Factory in Nizamabad, Telangana. On 28.08.2002 the State Government entered into a Joint Venture Agreement (JV) with one Delta Paper Mills Ltd. (DPML), whereby the assets and business of the four units of NSL i.e. Metapalli Sugar Mill, Mombojipalli Sugar Mills, Sharkarnagar Sugar Mills and Shakarnagar Distillery were transferred to joint venture vehicle viz NDSL(Corporate Debtor). As part of arrangement the DPML held 51% shares and NSL held ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ebtor and Rama Krishna Gupta appointed as Interim Resolution Professional (IRP) and declared moratorium. 7. Thereafter the IRP made a public announcement on 23.09.2017 intimating the commencement of CIRP in the matter of NDSL, inviting the Creditors to submit their claims. In response, Financial Creditors Andhra Bank, Syndicate Bank and UCO Bank have filed their claims and CoC was constituted on 20.10.2017. The first CoC was held on the same day and IRP was appointed as RP. Total 11 CoC meetings were convened between 20.10.2017 to 06.09.2018. In response to issuance of EOI only two persons Phoenix ARC Pvt. Ltd., Mumbai and Hindustan Infrastructure Projects and Engineers Pvt. Ltd., Bangalore submitted their EOI. The CoC deliberated on the EOI received from the above two resolution applicants. The CoC noted that none of these two prospective resolution applicants met the criteria fixed by the CoC i.e. experience in manufacturing of sugar. Thereafter, invitation of resolution plans in Form-G was uploaded on IBBI website on 10.05.2018 and published on 16.05.2018 in newspapers. In response to the said invitation three prospective resolution applicants through email have asked RP to s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ugned order to be discovery of fraud be excluded for computing the period of limitation. It is stated that this Hon ble Tribunal acceded to the request vide order dated 24.07.2019 allowed the Appellants to challenge the order of Admission within ten days. In the light of the aforesaid facts and circumstances the delay of 748 days in filing the Appeal may be condoned. 9. The Respondent No. 1 2 filed the Reply of the Application for condonation of delay and stated that since inception the Appellants were fully aware of the passing of the order dated 20.09.2017 and were also informed about it by the RP vide letter dated 25.09.2017 and the Appellants had also filed claim for ₹ 50.91 Crores before the RP. Hence, the Appellants cannot take the plea of ignorance that they were not aware of the initiation of proceedings against the Corporate Debtor. The plea of fraud was taken by the Appellants, without any basis. This Appellate Tribunal in the case of National Spot Exchange Ltd. Vs. Anil Kohli CA (AT) (Ins) No. 683 of 2019, Principal Director General of Income Tax Vs. Spartek Ceramics India Ltd. CA (AT) (Ins) No. 160 and 258 of 2017, Central Transmission Utility Vs. Korba West ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... posed the application for condonation of delay and the Appeal on the aforesaid grounds taken by the Respondent No. 1 2. 12. The Respondent No. 8 to 11 in their Reply opposed the Application and the Appeal on the same grounds which were taken by the Respondent No. 1 2. 13. The Respondents resisted the Appeal against the order of liquidation on the ground that the allegations raised in the Appeal are false and frivolous and does not constitute material irregularity as per Regulation 33 34 of CIRP Regulations the Applicant being the Corporate Debtor paid the CIRP costs to the IRP, hence, there is no material irregularity. Regulation 36-A was inserted w.e.f 04.07.2018. Therefore, the publication in newspapers made by the RP was statutorily not required. The RP immediately after his appointment approached the State of Telangana to understand the thinking of Government of Telangana, however, no communication was received from the Appellants. Thus, RP has not committed any irregularity in conducting CIRP of Corporate Debtor. 14. The decision on the Application for condonation of delay was deferred. Therefore, we have heard the arguments on this application at the time of fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h amendment is subsequent to initiation of CIRP. Therefore, this amendment is not applicable to the present case. It is also submitted that after passing of the resolution the authorized person has filed the Application under section 10 of the IBC and the Appellants have not raised any objection before the Adjudicating Authority that the Application under Section 10 of the IBC is not maintainable, therefore, at a belated stage when the liquidation is ordered by the Adjudicating Authority, such objection cannot be entertained. 18. Ld. Counsel for the Respondent No. 1 2 further submitted that reliance wrongly been placed by the Appellant on Gaja Trustee Company case. The decision of this Appellate Tribunal in the case of Umesh Agrawal Vs. Ricoh India Ltd. (2019) 214 Company Cases 490 clearly covers the present case. In this case, this Appellate Tribunal held that the IBC was amended w.e.f 06.06.2018 and therefore any order of admission made by the Adjudicating Authority prior to 06.06.2018 shall not require the consent of shareholders through a special resolution, if the AoA empowers the board of directors.The same view has been followed by this Appellate Tribunal in the case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ations. 23. Firstly we would like to analyse the ratio of the Judgments cited by the Ld. Counsels for the parties. In the case of Gaja Trustee Company Pvt. Ltd. (Supra), this Appellate Tribunal after elaborate discussion held that the decision ofliquidation, dissolutionor winding up of the Company should be taken strictly as per the provisions of AoA. If any resolution for liquidation or winding up of the company is passed ignoring the provisions of AoA then such resolution cannot be a basis of initiation of CIRP under Section 10 of the IBC. 24. Ld. Counsel for the Respondents have placed reliance on the Judgment of Umesh Aggarwal (Supra) and Amit Gupta (Supra) in both the Judgments Gaja Trustees Judgment is considered. In the case of Umesh Aggarwal (Supra) the Application under Section 10 of the IBC was admitted on 14.05.2018 against this order the Appeal has been preferred by the shareholders on the ground that no Annual General Meeting (AGM) nor any Extraordinary General Meeting (EGM) was conducted for taking decision to file an Application under Section 10 of the IBC and the Appellant has cited the Judgment of Gaja Trustee (Supra). This Appellate Tribunal distinguishing t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oposed resolution plan. Therefore, it is observed that, the Appellant holding 93.30% can hardly claim that decision of AGM/EGM is or was necessary. Thus, the Appeal was rejected. 26. With the aforesaid, we can say that the Judgments which are relied upon by the Ld. Counsel for the Respondents are not helpful to them and the ratio of the Judgment in Gaja Trustee (Supra) holds thefield. 27. Now, we would like to refer the relevant paragraphs of the Judgment of Gaja Trustee (Supra)which are as under:- 27. Article 9.1 which also relate to Affirmative Vote Matters , which reads as follows: 9. Affirmative Vote Matters 9.1 No action or decision shall be taken and/or no resolution shall be adopted at a Board meeting or a Shareholder meeting any committee thereof, or any of the employees, officers or managers or the Target Companies, in respect of any Affirmative Vote Matter save and except with the prior written consent of the Investors. For this purpose, any connected contracts or transactions shall be combined to determine the applicability of the limits specified in the Affirmative Vote Matters. 28. From the aforesaid provisions, it is clear that no action or dec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cles of Association of the Exchange expressly provide that in the event of the member failing to carry out the engagement and in the conditions specified therein his share shall stand forfeited. Articles 22, 24, 26, 27 and 29 of the Exchange relating to forfeiture of shares in certain events are therefore valid. 35. The Hon ble Supreme Court in Life Insurance Corporation of India V/s. Escorts Ltd. and Others. ─ (1986) 1 SCC 264 held: A Company is, in some respects, an institution like as State functioning under its 'basis Constitution' consisting of the Companies Act and the memorandum of Association. Carrying the analogy of constitutional law a little further, Gower describes the members in general meeting and the directorate as the two primary organs of a company and compares them with the legislative and the executive organs of a Parliamentary democracy where legislative sovereignty rests with Parliament, while administration is left to the Executive Government, subject to a measure of control by Parliament through its power to force a change of Government. Like the Government, the Directors will be answerable to the 'Parliament' constituted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unction cannot be granted to restrain the holding of a general meeting to remove a director and appoint another. 36. In view of the aforesaid decision of the Hon ble Supreme Court and other Hon ble Courts, we hold that the Article 1.1.3; 9.1 and 9.2 are binding on all the shareholders as also on the Board of Directors as also on the Company . We have already held that the Board of Directors of a Company is not empowered to file an application under Section 10 for its own liquidation or dissolution or Corporate Insolvency Resolution Process . For the said reason, the application under Section 10 filed by the Board of Directors was not maintainable. The argument that Section 59 of the I B Code is the only provision for liquidation, cannot be accepted as initiation of Corporate Insolvency Resolution Process by the Company ( Corporate Debtor ) against itself under Section 10 may result into its own liquidation. If the Resolution Process starts and ultimately fails because of non-approval of the Resolution Plan , at that stage provisions of Articles of Association cannot be given effect nor the approval of the shareholders can be taken. 37. An application und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Annual Budget and business and investment plan, all transactions regarding building and land, including the lease, purchase, sale and mortgage of these assets, doing of anything that would result in NDSL coming under the control of any other company or person, dissolution or voluntary liquidation NDSL and any material change in the business of NDSL, such matters shall be taken only by affirmative vote of three or more directors but there must be included in the qualified majority at least one director nominated by NSL. 31. Clause 108 of AoA provides how to resolve the deadlock exist on any matter between the Directors. Clause 108 of AoA is as under:- 108. Failure to achieve qualified majority: If after two meetings of the Board have been called, it is not possible to achieve a qualified majority for a proposal, due to failure to obtain a quorum or the support of a Director nominated by NSL, but for which proposal at least three Directors have indicated there support in writing to the Secretary, then the chairman may certify that, Deadlock exist and refer the matter to the shareholders who shall use their best efforts to resolve the deadlock. 32. Now, we have examined w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d subject to the approval of such other authorities as may be required, the board has taken note of the repealing of board for industrial and financial reconstruction (BIFR) w.e.f 1st December, 2016 and thereby the consent of board of directors of the company be and is hereby accorded to file an application before the NCLT for the purpose of seeking the Insolvency Resolution Process. 33. The Hon ble Supreme Court in the case of John Tinson Co. Pvt. Ltd. Ors. V/s. Surjeet Malhan (Mrs) Anr. (1997) 9 SCC 651 held that it is now a well settled position that AoA of a pvt. Company is a contract between the parties. Hon ble Supreme Court in the case of Naresh Chandra Sanyal V/s. Calcutta Stock Exchange Association Ltd. (1971) (1) SCC 50 held that subject to the provisions of the Companies Act, the Company and the members are bound by the provisions contained in the AoA. Thus, it is settled law that the members are bound by the provisions contained in the AoA. 34. Learned Senior Counsel for the Appellants also pointed out that as per second proviso of Section 179(1) of Companies Act, 2013, the Board shall not exercise any power or to do any act or thing which is directedor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of delay the Appellants have taken two grounds (i) The Appellants were not aware of the fraud and suppression of the material facts perpetrated by the Corporate Debtor in filing the application under Section 10 of IBC. Therefore, when the fraud discovered the Appeal was preferred. Hence, the period that lapsed from passing of the impugned order to discovery of the fraud we excluded for computing the period of limitation. (ii) This Hon ble Tribunal vide order dated 24.07.2019 allowed the Appellants to challenge the order of admission within ten days. Pursuant to the order the Appeal has been filed. Thus, the appeal is within limitation. 40. Learned Counsel for the Respondents pointed that the Appellants were fully aware of passing of the admission order dated 20.09.2017 and were also informed about it by the RP vide letter dated 25.09.2017 the Appellants had filed claim of ₹ 50.91 Crores before the RP. Therefore, the Appellants cannot take plea of ignorance. The plea of fraud was taken by the Appellant, without any basis. It is also submitted that this Tribunal vide order dated 24.07.2019 allowed the Appellants to file Appeal against order of admission does not amoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve this object the RP and the private management of the Corporate Debtor are hand in glow in managing the CIRP of the Corporate Debtor. The RP decided to publish EOI in newspapers with the minimal subscription base and circulation. Such publication is in direct contravention of regulation 36-A of CIRP regulations which mandates that the publication must be in newspapers having a wide circulation. In such manner only limited prospective resolution applicants could participate in the process of resolution. The Adjudicating Authority initiated the CIRP on 20.09.2017 shortly, therefore, on 23.01.2018 the private management of the Corporate Debtor made a representation to the COC for permission to sell 161 acres of land of the Corporate Debtor. Pursuant to the permission granted by the COC, the RP filed an application on 21.02.2018 before the Adjudicating Authority praying for sale of the land to an extent of Acres 29.29 Guntas belonging to Corporate Debtor. However, the Adjudicating Authority was pleased to dismiss the said application on the ground that the Corporate Debtor was undergoing CIRP as opposed to liquidation proceedings apart from being contrary to regulation 29 of IBBI (In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gement of the Corporate debtor. Such cost should have been paid by the financial creditors as per the regulation no. 3 5 of the 1st Schedule of code of conduct for Insolvency Professionals to the IBBI (Insolvency Professional Regulations) 2016. It is also pointed out that as per the valuers appointed by the RP, even the distress sale value of the Corporate debtor is more than the dues owed by the Corporate debtor to all its creditors. The liquidation of the Corporate debtor would benefit nobody except the private management of the Corporate debtor and would be detrimental to thousands of farmers relying on the Corporate debtor for their livelihood. In light of the aforesaid submission, it is prayed that the liquidation order ought to be set aside. 49. Per Contra, Ld. Counsel for the Respondents No.1 2 submitted that the allegation raised in the Appeal does not constitute material irregularity and the same is made without any basis. So far as the CIRP cost is concerned regulation 2A defines that Applicant means the person filing an Application under Section 7, 9 or 10 of the IBC as the case may be. In the instant case, the Application under Section 10 of the IBC was institute ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct from 04.07.2018. Whereas, in the present case the publication in the newspapers was made on 16.05.2018. Regulation 36-A did not mandate the publication of invitation of Resolution Plan either in Form-G or otherwise in newspapers. It is only the amended Regulation 36A which came into effect from 04.07.2018 that requires the publication of Form-G in the newspapers. Therefore, the publication in the newspaper made by the RP in the case on hand on 16.05.2018 was statutorily not required and hence, the Appellants cannot take advantage of the amendment that came later, to attack advertisement. 52. Ld. Counsel for the Respondent No. 1 2 also submitted that the Appellants made false allegationswithout any basis that the RP by acting inconcert with the private management to liquidate the assets of the Corporate Debtor. The minutes of the 3rd CoC meeting dated 24.01.2018 is categorically clear and the same are self-explanatory that RP already clarified that the sale of unencumbered asset cannot be done in the instant case. It is the CoC decision to file an Application before the Adjudicating Authority to liquidate the assets. 53. Ld. Counsel for the Respondent No. 1 2 submitted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on plan to revive Corporate Debtor due to dissolution of first Legislative Assembly. In such circumstances, the RP filed the Application before the Adjudicating Authority for liquidation of Corporate Debtor Company. 55. Thus, all the false and frivolous allegation raised in this Appeal does not constitute material irregularity and the same is made without any basis. The Appeal is not maintainable and liable to be dismissed. 56. Ld. Counsel appearing on behalf of the Respondent No. 3 to 7 supports the arguments advanced by the Ld. Counsel for the Respondent No. 1 2. 57. After hearing Ld. Counsels for the parties, we have carefully examined the record. 58. Firstly we have considered whether the RP deliberately published EOI in newspapers with the minimal subscription base and circulation, in contravention of regulation 36-A of CIRP Regulations? Admittedly, EOI was published in two newspapers i.e. The New Indian Express (English Language) and 2nd Andhra Prabha (Regional Language) inviting the prospective resolution applicants to submit their EOI for the submission of resolution plan on 26.01.2018 with a corrigendum on 30.01.2018. Regulation 36A before amendment provides t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t Pg. 530 to 532 Reply of R1 Volume III). 61. With the aforesaid, it cannot be said that the Appellants were unaware with the CIRP and the RP approached the Appellants at a belated stage for revival of Corporate Debtor. 62. The Appellants have not placed on record any communication to show that they have directed the RP to seek exclusion to time consumed under I.A. No. 213 of 2018 to enable filing of resolution plan. Admittedly, no resolution plan was submitted by the Appellants to the RP within/after expiry of CIRP period. 63. With the aforesaid discussion, we are unable to convince with the arguments of Ld. Counsel for the Appellants that the RP committed material irregularity while conducting the CIRP of the Corporate Debtor and the RP has not made any attempt for resolution of the Corporate Debtor and actively sought for liquidation of the Corporate Debtor. As per Section 61(4) of the IBC the order of liquidation can be set aside only on the ground of material irregularity or fraud committed in relation to such a liquidation order. 64. With the aforesaid we hold that the application under Section 10 filed by VR Chary authorised by the Board of directors, was not mai ..... 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