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TMI Blog2022 (3) TMI 698X X X X Extracts X X X X X X X X Extracts X X X X ..... bt i.e. permit the borrower to make the payment debt in different time schedule or different instalment as per any Scheme, the said will be debt restructuring. The statutory scheme required consent by not less than 75% of the secured creditors for such debt restructuring which indicate that debt restructuring is to be consented by specific majority of secured creditors and it is secured creditors who are generally banks and the financial institution who can restructure the debt. Obligation to obtain the consent of 75% of the Creditors is on the person who proposes the Scheme. When the Scheme was submitted by Respondent Nos.2 and 3 to the Liquidator, the Liquidator was required to intimate the Respondent Nos.2 and 3 to obtain consent by 75% of creditors and it was for Respondent Nos. 2 and 3 to present the Scheme before Creditors and impress them to give their consent - The Liquidator in the present case, after holding Respondent Nos.2 and 3 to be eligible to submit the Scheme on 21st October, 2021, placed the Scheme before Stakeholder Consultation Committee on the next day, that is, 22nd October, 2021 and refused Respondent Nos.2 and 3 to present and clarify the Scheme before th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hority (National Company Law Tribunal), Allahabad Bench, Allahabad in I.A No. 314 of 2021 filed by the Respondent Nos. 2 3. The Adjudicating Authority by order dated 01.11.2021 directed the Liquidator to consider the Scheme under Section 230 of the Companies Act, 2013 submitted by the Respondent Nos. 2 3 and in the meantime, no further steps were directed to be taken with regard to the auction of the assets of the Corporate Debtor. The brief facts of the case and sequence of the events necessary to be noted for deciding the issue raised in this Appeal are: The Liquidation Process was initiated against the Corporate Debtor i.e. M/s. Shree Bhawani Paper Mills Limited by order dated 07.07.2021 passed by the Adjudicating Authority in CP(IB) No. 110/ALD/2017. The Ex-Managing Director of the Corporate Debtor Shri Badri Vishal Tandon died on 12.07.2021. On 18.09.2021, Smt. Meenu Tandon, wife of late Badri Vishal Tandon, wrote to Liquidator informing that her husband Badri Vishal Tandon was the largest shareholder of the Corporate Debtor holding 14.6% shares and as per his WILL she has inherited all his shares and has now become the largest shareholder of the Company. Liquidator w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion on the Scheme. It was further requested that Respondent No.2 has filed an Application before the Adjudicating Authority and till the time Application is not decided, the Liquidator should refrain from dealing with the assets of the Corporate Debtor. Meeting of the Stakeholders Consultation Committee took place on 22.10.2021 where the Liquidator informed about the eligibility of the Respondent Nos. 2 and 3 to propose a Scheme of Compromise or Arrangement. Liquidator sought views/ vote of the members present on the Scheme. According to the minutes, 59.66% voted against the Scheme and it was recorded in the minutes that in terms of Section 230(6) of the Companies Act, 2013, an approval of 75% in value of the creditors is required. Hence, on the basis of the voting, Liquidator declared that the Scheme has not been approved by the Creditors during the Stakeholders Consultation Committee meeting. After declaring that Scheme has not been approved, the Liquidator sought permission of the Stakeholders Consultation Committee members to call Mr. Akshat Tandon for presentation and took vote and according to minutes, 91.35% voted against the presentation of the Scheme by Respondent No.2. It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... idered by the Liquidator. The Adjudicating Authority committed error in permitting Respondent Nos. 2 and 3 to file a revised scheme before the Liquidator. Further, no scheme could have been entertained beyond the period of 90 days prescribed for completion of entire process under Section 230 of the Companies Act, 2013. It is submitted that the impugned order has been passed in violation of principles of natural justice since the Appellant was not arrayed as a party to the proceeding and I.A No. 314 of 2021 had become infructuous at the time of passing of the impugned order. It is submitted that the Sale Certificate was issued on 30.12.2021 in favour of the Appellant who has made all payments. 3. Shri Tarun Gulati, Learned Senior Counsel appearing for Respondent Nos. 2 and 3 refuting the submissions of Counsel for the Appellants contends that entire process adopted by the Liquidator with regard to Scheme of Compromise or Arrangement submitted by Respondent Nos. 2 and 3 is contrary to the provisions of the Code and Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016. When a Scheme of Compromise or Arrangement was submitted to the Liquidator well within ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich process also did not conclude within 90 days cannot be heard to contend that the Scheme was not sanctioned within 90 days. 4. It is further submitted that against the order dated 01.11.2021 passed by the Adjudicating Authority, this Court on 23.11.2021 passed only an interim order. It was not open for the Liquidator during the pendency of the Appeal to issue Sale Certificate in favour of the Appellant. The Appeal filed by the Appellant has not yet allowed and the Liquidator to unduly benefit the Appellant has proceeded to issue Sale Certificate as well as assets to the Appellants. It is submitted that in the auction notice the reserve price mentioned was ₹ 45 crore. In the scheme, which was submitted on 04.10.2021, the Respondent No.2 has valued the Scheme as ₹ 45.21 Crore and the sole bid placed by the Appellants was for ₹ 45.30 Crores. It was submitted by the Learned Counsel for the Appellants that information regarding value of the Scheme was leaked to the Appellant that is why he gave an offer of ₹ 45.30 Crores. The auction which was held on 25.10.2021 was against the provisions of the Code and Regulations and is a result of illegalities committe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e or Arrangement be completed. Further, by virtue of sub-regulation (2) of Regulation 2B, the period of 90 days is not to be included in the liquidation period. This Tribunal in several judgments has emphasised that before taking steps to sell the assets of the Corporate Debtor, the Liquidator is to take steps in terms of Section 230 of the Companies Act, 2013. This Tribunal in S.C. Sekaran vs. Amit Gupta- Company Appeal (AT) (Ins.) No. 495 496 of 2018 laid down following:- Before taking steps to sell the assets of the corporate debtor(s) (companies herein), the Liquidator will take steps in terms of Section 230 of the Companies Act, 2013. The Adjudicating Authority, if so required, will pass appropriate order. Only on failure of revival, the Adjudicating Authority and the Liquidator will first proceed with the sale of company s assets wholly and thereafter, if any possible to sell the company in part and in accordance with law. 9. Further, in Y. Shivram Prasad vs. S. Dhanpal- Company Appeal (AT) (Insolvency) No. 224 of 2018 again in paras 13 and 14, following was held:- 13. Therefore, it is clear that during the liquidation process, step required to be taken ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onsideration regarding the Scheme submitted by the Respondent Nos.2 and 3 is contained in para-A which is to the following effect:- A. Eligibility under Section 29 A of proposers of the scheme of Compromise Arrangement i.e. Mr. Akshat Tandon and Ecofirt PTE. Ltd. and Presentation of the scheme to SCC The Liquidator apprised that as per the provisional eligibility report forwarded by the Liquidator vide email dated 14th October, 2021, the Liquidator had formed an opinion that both the above proposers of the scheme were not eligible due to the reasons mentioned in the said report. Subsequently, Mr. Akshat Tandon had sent to the Liquidator relevant circulars of MSME ministry and RBI mentioning that on the basis of these circulars they are eligible. Thereafter, the Liquidator had conducted its own due diligence and after examination, the Liquidator on the basis of additional information declared that both the proposers of the scheme eligible under Section 29A in terms of Section 240 A of the Code. A complete revised report of the Liquidator is enclosed for perusal of the Stakeholders. The Liquidator thought it pertinent to convey that the said scheme was to be submit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rkmen, employees and Governments M/s Ashirwad Industries 2.22% Voted against No reason given - Raja Ram Gupta Co- Proprietor- Gyan Prakash Gupta Not available during the voting* 6 Government Employees Provident Fund Organisation Regional Office- Lucknow 2.51% Not present Not Present 7 Operational Creditors other than Workmen, employees and Governments Mr. Om Prakash Goenka - Not present Not Present Total 100.00% *not possible to split the voting share therefore taken as voted against Result for voting- Voted against- 59.66% Voted in favour- 3.93% Did Not vote- 33.91% Not Present- 2.51% Since in terms of Section 230 (6) of the Companies act 2013, an a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fice- Lucknow 2.51% Not Present 7 Operational Creditors other than Workmen, employees and Governments Mr. Om Goenka Prakash - Not Present Total 100.00% Since 91.35% of voting share of the Creditors had voted against the presentation of the scheme before the SCC to me made by Mr. Akshat Tandon, the Liquidator decided not to invite Mr. Tandon accordingly. 12. We may first notice the purpose and object of the Stakeholders Consultation Committee. Regulation 31A deals with Stakeholders Consultation Committee . Regulation 31A (1) is as follows:- 31A. Stakeholders consultation committee. (1) The liquidator shall constitute a consultation committee within sixty days from the liquidation commencement date, based on the list of stakeholders prepared under regulation 31, to advise him on the matters relating to sale under regulation 32. 13. The Stakeholders Consultation Committee is only to advise the Liquidator on the matters relating ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gal Counsel present in the meeting apprised the stakeholders about the provisions of Section 230 of the Companies Act, 2013 as well as the requisite voting share required for approval of a Scheme of Compromise of Arrangement. 16. Section 230(6) of the Companies Act, 2013 has been relied by the Liquidator for holding that the Scheme has not been approved by the Creditors. We may at this stage notice Section 230 (1) as well as Section 230 (6), which are to the following effect:- 230. Power to compromise or make arrangements with creditors and members.- (1) Where a compromise or arrangement is proposed- (a) between a company and its creditors or any class of them; or (b) between a company and its members or any class of them, the Tribunal may, on the application of the company or of any creditor or member of the company, or in the case of a company which is being wound up, of the liquidator, order a meeting of the creditors or class of creditors, or of the members or class of members, as the case may be, to be called, held and conducted in such manner as the Tribunal directs. Explanation.-For the purposes of this sub-section, arrangement includes a reorganisat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e aspect with regard to which there appear to be misconception in the mind of Liquidator and Stakeholders Consultation Committee. What is mandated by sub-regulation (9) of Regulation 31A is that Stakeholders Consultation Committee shall advice the Liquidator by a vote of not less than sixty-six percent of the representative of the Consultation Committee, present and voting. Thus, percentage has to be computed on the members of the Stakeholders Consultation Committee present and voting and not from value of claims of the Financial Creditor. When we look into the Regulation 31A (2) which provides composition of the Consultation Committee, it is clear that the number of representatives have been provided in Column-3. The percentage of voting computed by the Liquidator is not on the basis of votes of members present in the voting rather on the value of the claim. This is wholly contrary to the statutory Scheme under Regulation 31A (9). 20. From the above discussion, it is clear that the meeting of the Stakeholders Consultation Committee and its minutes is not in accordance with the statutory Scheme nor it can be held that Stakeholders Consultation Committee had given any advice to r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the auditor that the fund requirements of the company after the corporate debt restructuring as approved shall conform to the liquidity test based upon the estimates provided to them by the Board; (iv) where the company proposes to adopt the corporate debt restructuring guidelines specified by the Reserve Bank of India, a statement to that effect; and (v) a valuation report in respect of the shares and the property and all assets, tangible and intangible, movable and immovable, of the company by a registered valuer. 22. We have considered the submissions of the parties in the above regard and perused the statutory scheme under Section 230. 23. Section 230(2)(c) uses expression any scheme of corporate debt restructuring consented to by not less than seventy-five per cent of the secured creditors in value . Sub-clause (c) of sub-section (2) of Section 230 is attracted when there is a scheme of corporate debt restructuring. The expression used in sub-clause (c) is corporate debt restructuring . Debt restructuring is well known concept. Debt given by a lender can be restructured by the lender by any scheme issued by the lender or Reserve Bank of India or Central ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of secured creditors and it is secured creditors who are generally banks and the financial institution who can restructure the debt. 27. We accept the submission of Shri Arun Kathpalia, learned Senior Counsel for the Appellant that the Scheme proposed by Respondent Nos.2 and 3 is an arrangement by Respondents, wherein alternations have been proposed in the terms of the loan and lesser amount have been proposed to be paid for settling the claim, which is restructuring of corporate debt. Hence, the Scheme under Section 230 submitted by Respondent Nos.2 and 3 ought to have consent of not less than 75% of the Secured Creditors, and an affidavit to that effect ought to accompany with the Scheme. 28. Obligation to obtain the consent of 75% of the Creditors is on the person who proposes the Scheme. When the Scheme was submitted by Respondent Nos.2 and 3 to the Liquidator, the Liquidator was required to intimate the Respondent Nos.2 and 3 to obtain consent by 75% of creditors and it was for Respondent Nos. 2 and 3 to present the Scheme before Creditors and impress them to give their consent. The Liquidator in the present case, after holding Respondent Nos.2 and 3 to be eligible to s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... olders of the CD and kept the undersigned in dark as to his eligibility to propose the Scheme for the reason best known to you. d) It is understood that you have exposed the Scheme of the undersigned to the Potential Bidder/s during the ongoing auction of assets of the CD, which action is unethical. e) You have deliberately excluded the promoter group from Stakeholders committee, to restrict their participation. The irregularities in constitution of Committee was pointed out well in time and is now pending before the Hon, NCLT in petition filed by Mrs. Meenu Tandon. f) The undersigned humbly states that he should be provided reasonable time to clarify any matters arising on the Scheme and before taking any decision on the Scheme, the undersigned be allowed reasonable opportunity to discuss and clarify on the Scheme to the members of the SCC. Please note that the undersigned has already filed an application before the Hon ble NCLT, Allahabad Bench seeking appropriate direction and till the time the said application is not decided, you should refrain from dealing with the assets of the CD in any manner, including concluding auction of assets of the CD. 29. As note ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Companies Act. The learned Counsel for the Appellant has submitted that Scheme submitted after the order of the Adjudicating Authority proposes a higher amount as compared to one which was offered by Appellant in auction held on 25th October, 2021. 30. One more aspect we notice with regard to claim of the Respondent Nos. 2 and 3 that Smt. Meenu Tandon, wife of late Badri Vishal Tandon, was the largest stakeholder and was entitled to participate in the Stakeholders Consultation Committee meeting. The relevant e-mails with regard to claims submitted by Smt. Meenu Tandon has been brought on the record by the Appellant himself in the Appeal. On 18.09.2021, Smt. Meenu Tandon, wife of late Badri Vishal Tandon, has informed the Liquidator about the death of Chairman and to include her as the largest shareholder. On 18.09.2021, following e-mail was sent by Smt. Meenu Tandon:- Dear Madam, This is to inform you that my husband Late Badri Vishal Tandon was the largest shareholder of Shree Bhawani Paper Mills Ltd., under Liquidation. In various folios he was holding 14.6 percent of shares and per his Will I have inherited all the shares and have become the largest shareho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed that the Respondent No.2 after he was informed by the Liquidator on 21.10.2021 that Respondent No.2 is eligible to submit a Scheme of Compromise or Arrangement, Respondent No.2 requested the Liquidator that he be permitted to explain the Scheme. Stakeholders Consultation Committee minutes dated 22.10.2021 has already been extracted above which indicates that the Liquidator first put the Scheme before the members of the Stakeholders Consultation Committee for their views and votes and after it was rejected, she obtained the opinion of the Stakeholders Consultation Committee as to whether Respondent No.2 be called for presentation and she took vote on the said issue. The aforesaid conduct of liquidator indicates that liquidator herself never wanted to give any opportunity to the Respondent No.2 to appear before the Stakeholders Consultation Committee and to explain his Scheme. Had liquidator wanted to give any opportunity and she wanted to obtain advice of the Stakeholders Consultation Committee on the above, she ought to have put the item before Stakeholders Consultation Committee first to consider before putting their Scheme for consideration. The hurried calling for the meeting ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eration of an order does not, however, lead to such a result. It only means that the order which has been stayed would not be operative from the date of the passing of the stay order and it does not mean that the said order has been wiped out from existence. This means that if an order passed by the Appellate Authority is quashed and the matter is remanded, the result would be that the appeal which had been disposed of by the said order of the Appellate Authority would be restored and it can be said to be pending before the Appellate Authority after the quashing of the order of the Appellate Authority. The same cannot be said with regard to an order staying the operation of the order of the Appellate Authority because in spite of the said order, the order of the Appellate Authority continues to exist in law so long as it exists, it cannot be said that the appeal which has been disposed of by the said order has not been disposed of and is still pending. 35. The interim order dated 23.11.2021 has put the order 01.11.2021 inoperative but the order dated 01.11.2021 was not quashed, it was appropriate for the Liquidator to obtain any clarification from the Adjudicating Authority or ..... X X X X Extracts X X X X X X X X Extracts X X X X
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