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TMI Blog2024 (8) TMI 998X X X X Extracts X X X X X X X X Extracts X X X X ..... inently, when the amendment was carried out, the concept of schemes of arrangement for revival of companies in liquidation was not statutorily recognized under the Code. There was no specific provision under the Code or under the Liquidation Process Regulations that permitted such a scheme of revival. Admittedly, schemes for revival of companies in liquidation was prevalent under the old Companies Act, 1956 and had been recognized by the Hon ble Supreme Court in MEGHAL HOMES (P.) LTD. VERSUS SHREE NIWAS GIRNI KK. SAMITI [ 2007 (8) TMI 447 - SUPREME COURT ]. However, it was not clear as to whether the same would also apply to a company undergoing liquidation under the Code. Thus, it can be safely stated that when SEBI carried out the amendment to various regulations including the LODR in May 2018, it did not have in its contemplation the concept of a scheme for compromise or arrangement for revival of a company in liquidation. The scheme in question in the present matter is akin to a Resolution Plan under Section 31 of the Code and it complies with the requirement of Resolution Plan under Section 30(2) of the Code and Regulation 37 and 38 of IBBI (Insolvency Resolution Process for C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eferred as Liquidation Process Regulations ). 2. In the said Application, vide the Impugned Order dated 04.04.2024, the Ld NCLT has held it is mandatory for the Liquidator to seek No-Objection Certificate for the Scheme from Respondent No. 2 / Bombay Stock Exchange under Regulation 37 of the SEBI (Listing Obligation and Disclosure Requirements), Regulations, 2015 ( LODR ), and accordingly directed the Respondent No.1 to seek NoC from BSE before the approval of the Scheme by the Ld. NCLT. 3. Thus the broad question of law to be addressed in the present Appeal is whether Regulation 37(1) and (2) of the LODR would apply to the Scheme submitted by the Liquidator under Section 230 of the Companies Act read Regulation 2B of the Liquidation Process Regulations, and alternatively, whether the clarification introduced by way of Regulation 37(7) of the LODR for restructuring proposals under Section 31 of the Code would also apply to a Scheme for revival of a company in liquidation under Regulation 2B of the Liquidation Process Regulations read with Section 230 of the Companies Act, 2013 especially considering two modes of revival are in similar continuum. 4. The Learned Senior Counsel for th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs Vs Sita Ram Agarwal (2003) 2 Supreme Court Cases 577. The Ld. Counsel for BSE also relied upon Regulation 5 and 11 of the LODR to say there exists an obligation upon the Liquidator to obtain an NOC from BSE before filing the first motion. 6. Learned counsel for the Liquidator (R1) stated he supports the appellant, and as Corporate Debtor is under liquidation, there are no shareholders in the Company. 7. Heard. 8. Under the Companies Act, admittedly, there is no provision mandating companies to obtain a prior NOC from stock exchanges for Scheme of Arrangement. In this context, at the outset, reference may be made to the following sub-sections (1), (2), (3) and (5) of Section 230 of the Companies Act which are reproduced hereinbelow: 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, appointed under this Act or under the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... benture-holders and the effect of the compromise or arrangement on any material interests of the directors of the company or the debenture trustees, and such other matters as may be prescribed: [ ] (5) A notice under sub-section (3) along with all the documents in such form as may be prescribed shall also be sent to the Central Government, the income tax authorities, the Reserve Bank of India, the Securities and Exchange Board, the Registrar, the respective stock exchanges, the Official Liquidator, the Competition Commission of India established under sub-section (1) of Section 7 of the Competition Act, 2002 (12 of 2003), if necessary, and such other sectoral regulators or authorities which are likely to be affected by the compromise or arrangement and shall require that representations, if any, to be made by them shall be made within a period of thirty days from the date of receipt of such notice, failing which, it shall be presumed that they have no representations to make on the proposals. ( Emphasis Supplied ) 9. Section 230(2) of the Companies Act refers to the requirements / disclosures for a Scheme of Arrangement and it does not prescribe any requirement for a prior NoC from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No-objection letter from the stock exchange(s). (Emphasis Supplied) 13. On a plain reading of Regulation 37(1) and 37(2), it becomes clear that Regulation 37(1) mandates the listed entity i.e. the company must apply for the NOC from the stock exchanges. Similarly, Regulation 37(2) imposes a prohibition on the listed entity / company from filing any scheme for approval without the NOC from stock exchanges. 14. Now in cases of companies in liquidation, a scheme of arrangement is not filed by the company / listed entity . It is rather filed by the liquidator. Further, under Section 230(1) of the Companies Act, the Liquidator is treated as separate and independent from the company . This is evident from the plain language of Section 230(1), which stipulates 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. 15. Thus section 230(1) of the Companies Act contemplates four different categories of persons who can apply to the NCLT for approval of a Scheme. Pertinently, Section 230(1) treats the liquidator as a separate and distinct category of person who can file a scheme be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 230(1) treats the Liquidator as a separate and distinct category. Suppose scheme is filed through the creditor, can he be made bound by the rigours of Regulation 37(1) (2). The answer would be no. 19. Now we come to applicability of Regulation 37(7) to find out if the requirement for prior NOC does not apply only to restructuring proposals approved as part of a resolution plan by the NCLT under section 31 of the Code. Pertinently, a scheme of arrangement for revival of a company in liquidation is also a restructuring proposal . It contains all the same attributes and characteristics of a resolution plan under Section 31 of the Code. It is just a different mode contemplated under the Code for achieving the same objective i.e. revival of the Corporate Debtor. Regulation 37(7) stipulates as follows: (7) The requirements as specified under this regulation and under regulation 94 of these regulations shall not apply to a restructuring proposal approved as part of a resolution plan by the Tribunal under section 31 of the Insolvency Code, subject to the details being disclosed to the recognized stock exchanges within one day of the resolution plan being approved. (Emphasis Supplied) 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for passing an order under Section 230 of the Act of 2013. Following the decision of NCLAT, an amendment was made on 25 July 2019 to the Liquidation Process Regulations by the IBBI so as to refer to the process envisaged under Section 230 of the Act of 2013. 69. The statutory scheme underlying the IBC and the legislative history of its linkage with Section 230 of the Act of 2013, in the context of a company which is in liquidation, has important consequences for the outcome of the controversy in the present case. The first point is that a liquidation under Chapter III of the IBC follows upon the entire gamut of proceedings contemplated under that statute. The second point to be noted is that one of the modes of revival in the course of the liquidation process is envisaged in the enabling provisions of Section 230 of the Act of 2013, to which recourse can be taken by the liquidator appointed under Section 34 of the IBC. The third point is that the statutorily contemplated 2019 SCC OnLine NCLAT 172; herein, referred to as Y Shivram Prasad activities of the liquidator do not cease while inviting a scheme of compromise or arrangement under Section 230. The appointment of the liquidator ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the appellants and the petitioners that attaching the ineligibilities under Section 29A and Section 35(1)(f) of the IBC to a scheme of compromise and arrangement under Section 230 of the Act of 2013 would be violative of Article 14 of the Constitution as the appellant would be deemed ineligible to submit a proposal under Section 230 of the Act of 2013. We find no merit in this contention. As explained above, the stages of submitting a resolution plan, selling assets of a company in liquidation and selling the company as a going concern during liquidation, all indicate that the promoter or those in the management of the company must not be allowed a back-door entry in the company and are hence, ineligible to participate during these stages. Proposing a scheme of compromise or arrangement under Section 230 of the Act of 2013, while the company is undergoing liquidation under the provisions of the IBC lies in a similar continuum. Thus, the prohibitions that apply in the former situations must naturally also attach to the latter to ensure that like situations are treated equally. (Emphasis Supplied) 21. After the introduction of the Code, in 2018 SEBI conducted a major overhaul of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... equired under Section 40. 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 not possible to sell the company in part and in accordance with law. (Emphasis Supplied) 25. This Tribunal in Y. Shivram Prasad v. S. Dhanapal Ors. 2019 SCC Online NCLAT 172 in judgement dated 27th February, 2019 further emphasized the revival of a Corporate Debtor during liquidation by way of the Scheme under Section 230 of the Companies Act. The said aspect has been duly noted by the Hon ble Supreme Court in Arun Kumar Jagatramka (supra). 26. It is after the judgment of the Hon ble NCLAT in S.C. Sekaran (supra) and Y. Shivram (supra) that Regulation 2-B was introduced in the Liquidation Process Regulations by amendment dated 25th July 2019. Regulation 2-B as it is now stipulates as follows: 2-B. Compromise or arrangement. (1) Where a compromise or arrangement is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Regulation 37(7) of LODR must be given a purposive interpretation. The strict literal interpretation of Regulation 37(7) must give way to a dynamic interpretation that achieves the objective of the sub-regulation i.e. to facilitate the modes of revival with an objective of preventing civil death of the companies. In this regard, the judgment of the Hon ble Supreme Court in Shailesh Dhairyawan v. Mohan Balkrishna (2016) 3 SCC 619 is apposite. In paragraph 33, the Hon ble Supreme Court holds as follows: We may also emphasize that the statutory interpretation of a provision is never static but is always dynamic. Though literal rule of interpretation, till some time ago, was treated as the 'golden rule', it is now the doctrine of purposive interpretation which is predominant, particularly in those cases where literal interpretation may not serve the purpose or may lead to absurdity. If it brings about an end which is at variance with the purpose of statute, that cannot be countenanced. Not only legal process thinkers such as Hart and Sacks rejected intentionalism as a grand strategy for statutory interpretation, and in its place they offered purposivism, this principle is now ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eme seek to achieve the same objective i.e. to prevent civil death of the company, and are also similar in form, the mode of revival by way of Scheme of Arrangement under liquidation would be more onerous than a Resolution Plan under Section 31 of the Code. The interpretation argued by the Respondent would run contrary to the entire objective of the Code to provide multiple modes of revival at various stages in order to resolve the indebtness of the Corporate Debtor and revive the company. The Courts have time and again held that every effort must be made to revive the business of the company as the same is in the interest of all the stake holders. 36. The argument of the learned counsel for the Respondent that strict meaning be given to Regulations does not convince us since the scheme of arrangement under Section 230 of the Companies Act has also been considered as a mode of revival, through judicial interpretation and subsequent introduction of Regulation 2B of Liquidation Process Regulation. 37. It is also relevant to note that the Ld. NCLT vide its order dated 02.05.2023 had directed that the Scheme shall be proceeded with. No appeal has been filed by Respondent No. 2 against ..... X X X X Extracts X X X X X X X X Extracts X X X X
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