Crux: Manoj Kunwar v. Oriental Bank of Commerce & Ors (06th February, 2020)- It was held by the Tribunal that, the Appeal was filed against the order of liquidation passed by the Adjudicating Authority is disposed-off based on the notification mentioned in Section 230 of the Act.
DATE OF JUDGEMENT: 6th February, 2020
JUDGES: Hon’ble Justice A.I.S. Cheema, Hon’ble Justice Kanthi Narahari & Hon’ble Justice Anant Bijay Singh
PARTIES
- Manoj Kunwar (Plaintiff)
- Oriental Bank of Commerce & Ors (Respondent)
SUBJECT: The Appeal was filed against the order of liquidation passed by the Adjudicating Authority
AN OVERVIEW
(i) In this present case, the learned Counsel for the Appellant submits that the liquidation value of the Company is Rs. 1.5 Crores but the Corporate Debtor, being Micro, Small and Medium Enterprises ('MSME'), the Appellant made efforts and has offered the Respondent, i.e., Oriental Bank of Commerce Rs.8.5 Crores to settle the dues of the Corporate Debtor but in spite of receiving 5% of the amount to show bonafide, later on Respondent No. 1, without assigning any reason, simply rejected One Time Settlement ('OTS') proposal.
(ii) It was further observed that the learned Counsel for the Appellant as well as Respondent No. 1 and learned Counsel for Respondent No. 3-Liquidator accept that the dues of Oriental Bank of Commerce are to the extent of 99.4% and rest are the dues of others.
(iii) Furthermore, the learned Counsel for the Respondent No. 1 submits that dues of the Bank are about Rs. 16 Crores and the Bank is not accepting the OTS proposal because the Bank has hope from the Securities available to recover the dues.
(iv) Furthermore, having heard learned Counsel for both the sides, the tribunal found that the interference in Impugned Order is not called for but the Appeal deserves to be disposed of with directions as were given in the matter of "Y.
(v) This Appellate Tribunal having noticed the decision of the Hon'ble Supreme Court in "Swiss Ribbon Pvt. Ltd. & Anr. v. Union of India & Ors. (Supra) and "Meghal Homes Pvt. Ltd." observed and held that, the primary focus of the legislation is to ensure revival and continuation of the corporate debtor by protecting the corporate debtor from its own management and from a corporate death by liquidation. In furtherance, the Code is thus a beneficial legislation which puts the corporate debtor back on its feet, not being a mere recovery legislation for creditors. It was observed that the interests of the corporate debtor have, therefore, been bifurcated and separated from that of its promoters /those who are in management. Consequently, the resolution process is not adversarial to the corporate debtor but, in fact, protective of its interests.
IMPORTANT PROVISIONS
Companies Act 1956
- Section 391(1)(b)-gives a right to the liquidator in the case of a company which is being wound up, to propose a compromise or arrangement with creditors and members indicating that the provision would apply even in a case where an order of winding up has been made and a liquidator had been appointed.
Companies Act 2013
- Section 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 Insolvency and Bankruptcy Code, 2016 as the case may be, 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
ISSUES
The present Appeal in terms of the above directions as noticed in the matter pertaining to Eligibility for proposing a scheme under Section 230 Companies Act.
ANALYSIS OF THE JUDGEMENT
1. Here, after the Companies Act 1956 was replaced by the2013 Companies Act, it stated that arrangement includes a reorganization of the company's share capital by the consolidation of shares of different classes or by the division of shares into shares of different classes, or by both of those methods. The company or any other person, by whom an application is made under subsection, shall disclose to the by affidavit.
2. Where a meeting is proposed to be called in pursuance of an order of the Tribunal under sub- section, a notice of such meeting shall be sent to all the creditors or class of creditors and to all the members or class of members and the debenture- holders of the company, individually at the address registered with the company which shall be accompanied by a statement disclosing the details of the compromise or arrangement, a copy of the valuation report, if any, and explaining their effect on creditors, key managerial personnel, promoters and non-promoter members, and the debenture-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: Provided that such notice and other documents shall also be placed on the website of the company, if any, and in case of a listed company, these documents shall be sent to the Securities and Exchange Board and stock exchange where the securities of the companies 14 Company Appeal (AT) (Insolvency) Nos. 224 & 286 of 2018 are listed, for placing on their website and shall also be published in newspapers
3. It was observed that, where the notice for the meeting is also issued by way of an advertisement, it shall indicate the time within which copies of the compromise or arrangement shall be made available to the concerned persons free of charge from the registered office of the company
4. Furthermore, a notice under sub-section shall provide that the persons to whom the notice is sent may vote in the meeting either themselves or through proxies or by postal ballot to the adoption of the compromise or arrangement within one month from the date of receipt of such notice. On the condition that, any objection to the compromise or arrangement shall be made only by persons holding not less than ten per cent. Of the shareholding or having outstanding debt amounting to not less than five per cent. of the total outstanding debt as per the latest audited financial statement
5. It was decided that a notice under sub-section 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 of Section 7 of the Competition Act, 2002, 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.
6. At a meeting held under sub- section, majority of persons representing three- fourths in value of the creditors, or class of creditors or members or class of members, as the case may be, voting in person or by proxy or by postal ballot, agree to any compromise or arrangement and if such compromise or arrangement is sanctioned by the Tribunal by an order, the same shall be binding on the company, all the creditors, or class of creditors or members or class of members, as the case may be, or, in case of a company being wound up, on the liquidator appointed under this Act or under the Insolvency and Bankruptcy Code, 2016, as the case may be, and the contributories of the company.
7. It was noted that no compromise or arrangement shall be sanctioned by the Tribunal unless a certificate by the company's auditor has been filed with the Tribunal to the effect that the accounting treatment, if any, proposed in the scheme of compromise or arrangement is in conformity with the accounting standards prescribed under Section 133.
8. It was observed that the order of the Tribunal shall be filed with the Registrar by the company within a period of thirty days of the receipt of the order. In furtherance, the Tribunal may dispense with calling of a meeting of creditor or class of creditors where such creditors or class of creditors, having at least ninety per-cent value, agree and confirm, by way of affidavit, to the scheme of compromise or arrangement.
9. It was concluded that, no compromise or arrangement in respect of any buy-back of securities under this section shall be sanctioned by the Tribunal unless such buy-back is in accordance with the provisions of Section 68.
10. It was noticed that the aggrieved party may make an application to the Tribunal in the event of any grievances with respect to the takeover offer of companies other than listed companies in such manner as may be prescribed and the Tribunal may, on application, pass such order as it may deem fit. The aggrieved party may make an application to the Tribunal in the event of any grievances with respect to the takeover offer of companies other than listed companies in such manner as may be prescribed and the Tribunal may, on application, pass such order as it may deem fit.
11. Taking into account that above sections, it was held by the tribunal that, it is clear that during the liquidation process, step required to be taken for its revival and continuance of the 'Corporate Debtor' by protecting the 'Corporate Debtor' from its management and from a death by liquidation. Steps such as: Step 1: By compromise or arrangement with the creditors, or class of creditors or members or class of members in terms of Section 230 of the Companies Act, 2013. Steps 2: On failure, the liquidator is required to take step to sell the business of the 'Corporate Debtor' as going concern in its totality along with the employees.
12. It was therefore held by the Tribunal that the last stage will be death of the 'Corporate Debtor' by liquidation, which should be avoided.
13. In continuation, the learned counsel appearing on behalf of the Appellant (Promoter) submitted that the provisions under Section 230 may not be completed within 90 days.
14. Furthermore, it was submitted that there will be objections by some of the creditors or members who may not allow the Tribunal to pass appropriate order under Section 230 of the Act.
15. It was held by the Tribunal that, the total period for liquidation is to be completed preferably within two years, for any reason the liquidation process under Section 230 takes more time, it is open to the Adjudicating Authority (Tribunal) to extend the period if there is a chance of approval of arrangement of the scheme.
16. In addition to that if any, objection is raised, it is open to the Adjudicating Authority (National Company Law Tribunal) which has power to pass order under Section 230 to overrule the objections, if the arrangement and scheme is beneficial for revival of the 'Corporate Debtor' (Company). The Adjudicating Authority is to play dual role, one as the Adjudicating Authority in the matter of liquidation and other as a Tribunal for passing order under Act.
CONCLUSION
In this case, as the liquidation so taken up under the 'I&B Code', the arrangement of scheme should be in consonance with the statement and object of the 'I&B Code'. The scheme must ensure maximization of the assets of the 'Corporate Debtor' and balance the stakeholders such as, the 'Financial Creditors', 'Operational Creditors', 'Secured Creditors' and 'Unsecured Creditors' without any discrimination. Consequently prior to approval of an arrangement or Scheme, the Adjudicating Authority (National Company Law Tribunal) should follow the same principle and should allow the 'Liquidator' to constitute a 'Committee of Creditors' for its opinion to find out whether the arrangement of Scheme is viable, feasible and having appropriate financial matrix. It will be open for the Adjudicating Authority as a Tribunal to approve the arrangement or Scheme in spite of some irrelevant objections as may be raised by one or other creditor or member keeping in mind the object of the Insolvency and Bankruptcy Code, 2016.
It was held by the Tribunal that, the liquidator is required to act in terms of the aforesaid directions of the Appellate Tribunal and take steps under Section 230 of the Companies Act. Furthermore, if the members or the 'Corporate Debtor' or the 'creditors' or a class of creditors like 'Financial Creditor' or 'Operational Creditor' approach the company through the liquidator for compromise or arrangement by making proposal of payment to all the creditor(s), the Liquidator on behalf of the company will move an application under Section 230 of the Companies Act, 2013 before the Adjudicating Authority i.e. National Company Law Tribunal, Chennai Bench, in terms of the observations as made in above. Consequently on failure to do so, as observed above, steps should be taken for outright sale of the 'Corporate Debtor' so as to enable the employees to continue. It was held by the Tribunal that, dispose the present Appeal in terms of the above directions as noticed in the matter.
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