NCLAT (27.02.2019) in Y. Shivram Prasad Vs. S. Dhanapal & Ors. [Company Appeal (AT) (Insolvency) No. 224 of 2018] held 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. Thus, the steps which are required to be taken are as follows:
- i. 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.
ii. 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.
- While passing such order, 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 Section 230 of the Companies Act, 2013.
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’. Meaning thereby, the scheme must ensure maximisation 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.
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
Excerpts of the order;
27.02.2019─ In the ‘Corporate Insolvency Resolution Process’ against ‘M/s. Servalakshmi Papers Ltd.’- (“SPL” for short) in absence of approved ‘Resolution Plan’ and 270 days having completed, the ‘Adjudicating Authority (National Company Law Tribunal), Division Bench, Chennai, passed order of liquidation by impugned order dated 21st June, 2017.
# 2. The Appellant- Y. Shivram Prasad, Promoter/ Director and Shareholder of the ‘SPL’- (‘Corporate Debtor’) has challenged the said order as arbitrary and unreasonable. According to the him, opportunity should have been given to the promoters to settle the matter.
# 3. The other appeal has been preferred by ‘Asset Reconstruction Company (India) Limited’- (“ARCIL” for short). Apart from being ‘Financial Creditor’, it had also filed a ‘Resolution Plan’ thereby, the Appellant- ‘ARCIL’ was one of the ‘Resolution Applicant’. The 5th Respondent- ‘Sripathi Papers and Boards (P) Limited’ (“Sripathi” for short) filed another ‘Resolution Plan’. Subsequently, both of them revised their respective ‘Resolution Plans’ commonly termed as ‘Modified ARCIL Resolution Plan’ and ‘Modified Sripathi Resolution Plan’. However, the ‘Committee of Creditors’ having not found any of them viable and feasible had not voted in their favour with its majority due to which the order of liquidation has been passed.
# 4. According to the Appellant- ‘ARCIL’, the ‘Committee of Creditors’ wrongly voted against their ‘Revised Resolution Plan’.
# 6. It was submitted that the Promoter should have been given opportunity to pay the dues. However, such submission cannot be accepted at this stage for the following reasons.
At what stage the parties can settle and with the application under Sections 7 or 9 or 10
# 7. Matter can be settled between the parties and an application(s) under Sections 7 or 9 or 10 can be withdrawn only at three stages:
i. Before admission of application under Sections 7 or 9 or 10
ii. After settlement if reached by Promoters / shareholders with the Applicant but before the constitution of the ‘Committee of Creditors’ in view of decision of the Hon’ble Supreme Court in “Swiss Ribbon Pvt. Ltd. & Anr. v. Union of India & Ors. Writ Petition (Civil) No. 99/2018 (2019 SCC OnLine SC 73)” . . . . . .
iii. In terms of Section 12 A, as quoted below:
“12A. Withdrawal of application admitted under section 7, 9 or 10. ─ The Adjudicating Authority may allow the withdrawal of application admitted under section 7 or section 9 or section 10, on an application made by the applicant with the approval of ninety per cent. voting share of the committee of creditors, in such manner as may be specified.”
# 10. The question arises for consideration as to what step should be taken by the ‘Liquidator’ during the ‘Liquidation’.
# 11. During the liquidation stage, ‘Liquidator’ required to take steps to ensure that the company remains a going concern and instead of liquidation and for revival of the ‘Corporate Debtor’ by taking certain measures.
# 12. The aforesaid issue fell for consideration before this Appellate Tribunal in “S.C. Sekaran v. Amit Gupta & Ors.─ Company Appeal (AT) (Insolvency) Nos. 495 & 496 of 2018” wherein 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:
8. In view of the provision of Section 230 and the decision of the Hon’ble Supreme Court in ‘Meghal Homes Pvt. Ltd.’ and ‘Swiss Ribbons Pvt. Ltd.’, we direct the ‘Liquidator’ to proceed in accordance with law. He will verify claims of all the creditors; take into custody and control of all the assets, property, effects and actionable claims of the ‘corporate debtor’, carry on the business of the ‘corporate debtor’ for its beneficial liquidation etc. as prescribed under Section 35 of the I&B Code. The Liquidator will access information under Section 33 and will consolidate the claim under Section 38 and after verification of claim in terms of Section 39 will either admit or reject the claim, as required 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.”
# 13. Therefore, 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. Thus, the steps which are required to be taken are as follows:
i. 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.
ii. 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.
# 14. The last stage will be death of the ‘Corporate Debtor’ by liquidation, which should be avoided.
# 15. Learned counsel appearing on behalf of the Appellant (Promoter) submitted that the provisions under Section 230 may not be completed within 90 days, as observed in “S.C. Sekaran v. Amit Gupta & Ors.” (Supra).
# 16. It is further 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 Companies Act, 2013.
# 17. Normally, the total period for liquidation is to be completed preferably within two years. Therefore, in “S.C. Sekaran v. Amit Gupta & Ors.” (Supra), this Appellate Tribunal allowed 90 days’ time to take steps under Section 230 of the Companies Act, 2013. In case, 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.
# 18. During proceeding under Section 230, 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). While passing such order, 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 Section 230 of the Companies Act, 2013. 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’. Meaning thereby, the scheme must ensure maximisation 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. Before 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.
# 19. In view of the observations aforesaid, we hold 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. 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. On failure, as observed above, steps should be taken for outright sale of the ‘Corporate Debtor’ so as to enable the employees to continue.
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