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TMI Blog2023 (1) TMI 550X X X X Extracts X X X X X X X X Extracts X X X X ..... of the I & B Code, 2016, read with Rule 11 of NCLT Rules, 2016, seeking, 'Liquidation' of the 'Corporate Debtor / Company', in IA/(IBC)/1213/CHE/2021 in IBA/883/2019, passed by the 'Adjudicating Authority', ('National Company Law Tribunal', Division Bench - I, Chennai), in dismissing the 'Application'. 2. The 'Adjudicating Authority', ('National Company Law Tribunal', Division Bench - I, Chennai). while passing the 'impugned order' dated 09.12.2022 in IVN.P(IBC)/1(CHE)/2022 in IA/ (IBC)/1213/CHE/2021 in IBA/883/2019, wherein, inter alia at Paragraphs 12.1 to 12.5, had observed the following: 12.1. The main contention of the applicant is that if the liquidation of the Corporate Debtor is ordered, severe hardship and prejudice would be caused to the Applicant and the other members of the Suspended Board of Directors of the Corporate Debtor. 12.2. Further, it has been submitted by the applicant that as per Section 230(12) of the Companies Act, 2013, the Applicant is an aggrieved party and is entitled to file an application before this Tribunal in the event of any grievance with respect to the takeover offer of the Company. Though, there is no takeover offer yet on the table and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has unanimously passed a Resolution for Liquidation of the Corporate Debtor, we are left with no other option than to liquidate the Corporate Debtor in terms of Section 33 of IBC, 2016 and accordingly IVN.P(IBC)/1(CHE)/2022 stands dismissed." Appellant's Contentions: 3. Challenging the 'impugned order' dated 09.12.2022 in Ivn.P(IBC)/1(CHE)/2022 in IA/(IBC)/1213/CHE/2021 in IBA/883/2019, passed by the 'Adjudicating Authority', ('National Company Law Tribunal', Division Bench - I, Chennai, in 'dismissing', the 'Interlocutory Application', filed by the 'Appellant'/'Petitioner'/'Proposed Respondent', the Learned Senior Counsel for the 'Appellant', submits that the 'Appellant', was a 'Promoter / Shareholder' of the 'Respondent / Corporate Debtor', is a 'Member' of the 'Suspended Board of Directors', of the 'Corporate Debtor' / 'M/s. Kamachi Industries Limited' ('Respondent'), and further that the 'Appellant' held 413840 'Equity Shares' of Rs.10/- each per 'Equity Share' of the 'Corporate Debtor'. 4. According to the Appellant, the 'Corporate Debtor / Company', is primarily engaged in the business of manufacturing sponge iron, billets, PMT Bars and generation of Power at Village Papp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it is pointed out that none other than the 'Promoter', has a direct interest in the welfare and the development of the 'Corporate Debtor'. Moreover, the 'Appellant / Petitioner', can always submit a 'Scheme of Arrangement' / 'Settlement'. 10. Therefore, it is contended on behalf of the Appellant / Petitioner that Ivn.P(IBC)/1(CHE)/2022 (Intervening Application in IA/(IBC)/1213/CHE/2021 in IBA/883/2019), is to be 'allowed', so as to permit him to 'intervene' and to put forward his submissions in IA/(IBC)/1213/CHE/2021, filed by the 'Resolution Professional', praying for 'Liquidation' of the 'Corporate Debtor' / 'Company', and to reimburse the costs to him. 11. The Learned Counsel for the Appellant / Petitioner submits that on 09.12.2022, the impugned order came to be passed by the 'Adjudicating Authority', in and by which, the 'Application', to initiate 'Liquidation' of the 'Corporate Debtor', was 'admitted', without appreciating that an 'Appeal' in Comp App (AT) (INS.) No. 328 of 2020, assailing the initiation of 'Corporate Insolvency Resolution Process', is pending, before the 'Appellate Tribunal', the 'Committee of Creditors', had misused the provisions of the Code, by projecti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion plan were to be given to the members of the suspended Board of Directors and added that it would be in the interest of some members of the suspended Board who may attempt to sabotage the corporate insolvency resolution process, for which reason also, resolution plans should be kept hidden from them. They argued that the "persons aggrieved" in Section 61 would necessarily refer to persons aggrieved for the purpose of Section 60(5) also, and as members of the ex-Board of Directors cannot be said to be persons aggrieved, they cannot possibly approach the Adjudicating Authority under Section 60(5) or the Appellate Tribunal under Section 61. 12. Having heard the learned counsel for all parties, it is important to first advert to the relevant provisions of the Code and the Regulations made thereunder. The relevant provisions of the Code are hereinbelow: "5. Definitions.-In this Part, unless the context otherwise requires,- (1)-(9) (10) "information memorandum" means a memorandum prepared by resolution professional under sub-section (1) of Section 29; (26) "resolution plan" means a plan proposed by resolution applicant for insolvency resolution of the corporate debtor as a goi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his behalf in the Committee of Creditors to the extent of his voting share; (b) represent himself in the Committee of Creditors to the extent of his voting share; (c) appoint an insolvency professional (other than the resolution professional) at his own cost to represent himself in the Committee of Creditors to the extent of his voting share; or (d) exercise his right to vote to the extent of his voting share with one or more financial creditors jointly or severally. (6-A) Where a financial debt- (a) is in the form of securities or deposits and the terms of the financial debt provide for appointment of a trustee or agent to act as authorised representative for all the financial creditors, such trustee or agent shall act on behalf of such financial creditors; (b) is owed to a class of creditors exceeding the number as may be specified, other than the creditors covered under clause (a) or subsection (6), the interim resolution professional shall make an application to the Adjudicating Authority along with the list of all financial creditors, containing the name of an insolvency professional, other than the interim resolution professional, to act as their authorised repres ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Directors or the partners of the corporate persons, as the case may be; (c) operational creditors or their representatives if the amount of their aggregate dues is not less than ten per cent of the debt. (4) The Directors, partners and one representative of operational creditors, as referred to in sub-section (3), may attend the meetings of Committee of Creditors, but shall not have any right to vote in such meetings: Provided that the absence of any such Director, partner or representative of operational creditors, as the case may be, shall not invalidate proceedings of such meeting. (5) Subject to sub-sections (6), (6-A) and (6-B) of Section 21, any creditor who is a member of the Committee of Creditors may appoint an insolvency professional other than the resolution professional to represent such creditor in a meeting of the Committee of Creditors: Provided that the fees payable to such insolvency professional representing any individual creditor will be borne by such creditor. (6) Each creditor shall vote in accordance with the voting share assigned to him based on the financial debts owed to such creditor. (7) The resolution professional shall determine the v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... property of the corporate debtor it may have access to; and (c) not to share relevant information with third parties unless clauses (a) and (b) of this sub- section are complied with. Explanation.-For the purposes of this section, "relevant information" means the information required by the resolution applicant to make the resolution plan for the corporate debtor, which shall include the financial position of the corporate debtor, all information related to disputes by or against the corporate debtor and any other matter pertaining to the corporate debtor as may be specified. 30. Submission of resolution plan.-(1) A resolution applicant may submit a resolution plan along with an affidavit stating that he is eligible under Section 29-A to the resolution professional prepared on the basis of the information memorandum. (2) The resolution professional shall examine each resolution plan received by him to confirm that each resolution plan- (a) provides for the payment of insolvency resolution process costs in a manner specified by the Board in priority to the payment of other debts of the corporate debtor; (b) provides for the payment of the debts of operational creditors ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2018 (6 of 2018) shall apply to the resolution applicant who has not submitted resolution plan as on the date of commencement of the Insolvency and Bankruptcy Code (Amendment) Ordinance, 2018. (5) The resolution applicant may attend the meeting of the Committee of Creditors in which the resolution plan of the applicant is considered: Provided that the resolution applicant shall not have a right to vote at the meeting of the committee of creditors unless such resolution applicant is also a financial creditor. (6) The resolution professional shall submit the resolution plan as approved by the Committee of Creditors to the Adjudicating Authority. 31. Approval of resolution plan.- (1) If the Adjudicating Authority is satisfied that the resolution plan as approved by the Committee of Creditors under subsection (4) of Section 30 meets the requirements as referred to in sub-section (2) of Section 30, it shall by order approve the resolution plan which shall be binding on the corporate debtor and its employees, members, creditors, guarantors and other stakeholders involved in the resolution plan: Provided that the Adjudi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... may prefer an appeal to the National Company Law Appellate Tribunal..... "62. Appeal to Supreme Court.-(1) Any person aggrieved by an order of the National Company Law Appellate Tribunal may file an appeal to the Supreme Court on a question of law arising out of such order under this Code within forty-five days from the date of receipt of such order. [emphasis supplied] 15. The statutory scheme of the Code, insofar as the former members of the Board of Directors are concerned, is as follows: A Committee of Creditors is first constituted under Section 21 consisting only of all the financial creditors of the corporate debtor. Under Section 24, all meetings of this committee are to be conducted by the resolution professional who, however, does not happen to be part of this committee. Section 24(3)(b) is important in that, the resolution professional has to give notice of each and every meeting of the Committee of Creditors, inter alia, to members of the suspended Board of Directors. Like operational creditors who may attend and participate in such meetings, provided the aggregate dues owing to them are not less than ten per cent of the total debt, both such operational creditors ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Creditors and the resolution professional may seek information from them. The Notes on Clauses, heavily relied upon by the learned counsel for the respondents, read as follows: "Clause 24 prescribes the modalities for the meeting of the Committee of Creditors. The meetings are conducted by the resolution professional and may be attended by the members of the Board of Directors or partners of the corporate debtor. This gives an opportunity for the Committee of Creditors and the resolution professional to seek information that they may require to assess the financial position of the corporate debtor and prepare a resolution plan." (emphasis supplied) 16. This 'Tribunal', points out the Judgment of the Hon'ble Supreme Court of India, in Arun Kumar Jagatramka v. Jindal Steel and Power Limited & Anr., (vide Civil Appeal No. 9664 of 2019 with Writ Petition (C) No. 269 of 2020 and Civil Appeal No. 2719 of 2020 dated 15.03.2021), reported in SCC (2021) 7 SCC 474, at Spl. Pg.: 533, wherein, at Paragraph 95, it is observed as under: 95. ''At this juncture, it is important to remember that the explicit recognition of the schemes under Section 230 into the liquidation process under t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ligible persons', including but not confined to those in the management who have run the company aground, to return in the new avatar or resolution applicants and S. 35(1) (f) IBC is placed in the same continuum - Further, the purpose of the ineligibility under S. 29-A IBC is to achieve a sustainable revival and to ensure that a person who is the cause of the problem either by a design or a default cannot be a part of the process of solution - Thus, it would lead to a manifest absurdity if the very persons who are ineligible for submitting a resolution plan, participating in the sale of assets of the company in liquidation or participating in the sale of the corporate debtor as a 'going concern', are somehow permitted to propose a compromise or arrangement under S. 230 of the Companies Act, 2013 - Hence, in the context of the statutory linkage provided by the provisions of S. 230 of the Companies Act, 2013 with Ch. III IBC, where a scheme is proposed of a company which is in liquidation under the IBC, it would be far-fetched to hold that the ineligibilities which attach under S. 35(1) (f) r/w S. 29-A IBC would not apply when S. 230 of the Companies Act, 2013 is sought to be invoked ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0. Upon being satisfied that the resolution plan meets those requirements, the adjudicating authority "shall by order approve the resolution plan". Before passing an order of approval the adjudicating authority has to satisfy itself that the resolution plan has provisions for its effective implementation. In the backdrop of the above provisions, the order of this Court dated 8-6-202020 required the adjudicating authority to perform the functions which are entrusted to it under Section 31 of the IBC. To suggest that the purpose of the order dated 8 June 2020 [Amtek Auto Ltd. Committee of Creditors v. Dinkar T. Venkatsubramanian, 2020 SCC Online SC 1131] was to enable DVI to re-negotiate the resolution plan after assessing the impact of the Pandemic is thus fundamentally flawed. It is flawed because this assertion is contrary to the plain terms of the record. It is flawed also because the submission is contrary to the nature of the function which is expected to be exercised by the adjudicating authority by the plain terms engrafted into the provisions of Section 31. When DVI moved its application on 12-6-2020, it asserted that the timeline of 15 days has "resulted in practical diffic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... panies Act, 2013, or any other law if the resolution plan of the company was not being considered under the Code, is deemed to have been given on its approval by the Adjudicating Authority. 6. The issues with the approval of competent authority." Appellate Tribunal's Decisions: 20. Further, this 'Tribunal' aptly points out the 'Order' of this 'Tribunal' dated 30.11.2017, in the matter of Amod Amladi v. M/s. Sayali Rane & Anr., in Comp. App (AT) (INS.) No. 295 of 2017, reported in (2017) SCC Online NCLAT 430, wherein, at Paragraphs 4 to 7, it is observed as under: 4. ''Heard learned counsel for the Appellant. Admittedly, the Appellant is an Investor therefore, the Appellant cannot claim to be an 'aggrieved person' for preferring appeal against the order dated 2nd May, 2017 passed by Adjudicating Authority whereby the application under Section 9 of the 'I&B Code' was admitted. In fact, the Appellant being an investor is entitled to file its claim before the 'Insolvency Resolution Professional'. 5. Further, as the order dated 2nd May, 2017 is not under challenge in this appeal this Appellate Tribunal cannot express any opinion with regard to the order of admission dated 2nd Ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ithin 30 days from the date of appointment of the interim resolution professional). We make it clear that at any stage where the committee of creditors is not yet constituted, a party can approach the NCLT directly, which Tribunal may, in exercise of its inherent powers under Rule11 of the NCLT Rules, 2016, allow or disallow an application for withdrawal or settlement. This will be decided after hearing all the concerned parties and considering all relevant factors on the facts of each case." 23. Also that, in the decision of the Hon'ble Supreme Court of India in Meghal Homes Pvt. Ltd. v. Shree Niwas Girni K.K. Samiti & Ors., reported in (2007) 7 SCC at Page 753, wherein, it is observed and held as under: 33. ''The argument that Section 391 would not apply to a company which has already been ordered to be wound up, cannot be accepted in view of the language of Section 391(1) of the Act, which speaks of a company which is being wound up. If we substitute the definition in Section 390(a) of the Act, this would mean a company liable to be wound up and which is being wound up. It also does not appear to be necessary to restrict the scope of that provision considering the purpose for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and other connected persons to enable the committee to assess the credibility of such applicant and other connected persons to take a prudent decision while considering the resolution plan for its approval. Explanation : For the purposes of this sub-regulation,- (i) 'details' shall include the following in respect of the resolution applicant and other connected person, namely:- (a) identity; (b) conviction for any offence , if any, during the preceding five years; (c) criminal proceedings pending, if any; (d) disqualification, if any, under Companies Act, 2013, to act as a director; (e) identification as a willful defaulter, if any, by any bank or financial institution or consortium thereof in accordance with the guidelines of the Reserve Bank of India; (f) debarment, if any, from accessing to, or trading in, securities markets under any order or directions of the Securities and Exchange Board of India,; and (g) transactions, if any, with the corporate debtor in the preceding two years. (ii) the expression 'connected persons' means- (a) persons who are promoters or in the management or control of the resolution applicant; (b) persons who will be promoters or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to the 'Shareholders' or 'Partners' of the 'Corporate Debtor', as the case may be. Section 230 of the Companies Act, 2013: 31. Section 230 of the Companies Act, 2013, is wide enough to include any reasonable 'Compromise' / 'Arrangement', and in many cases, advantage was taken of this provision, to carry through the Schemes of most varied character, in the considered opinion of this 'Tribunal'. Agreement: 32. An 'Agreement', means that it is between a 'Debtor' and its 'Creditors', to arrange the Debtor's affairs, to satisfy the 'Creditors'. 33. If a 'Transaction', is entered into with a view to circumvent the 'Laws', in 'evading' the 'Tax', a 'Tribunal' / 'Court of Law', will not approve such transaction. To put it precisely, if the arrangement is unfair and inequitable, the 'Scheme', cannot be sanctioned. Alternate Mode of Liquidation: 34. According to Buckley J, on Companies Act 11th Edition (vide Page No. 321), 'A Scheme of Compromise Arrangements & Amalgamations', is an 'alternative mode of Liquidation', which by 'Operational of Law', release the 'Company', and its 'Contributories', that which is contemplated or impose Scheme from 'Liability', further therein. 'Adjudic ..... X X X X Extracts X X X X X X X X Extracts X X X X
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