NCLAT dismisses Appellant’s present appeal against the order for liquidation passed by the Adjudicating Authority under Section 33 of the Insolvency & Bankruptcy Code, 2016 (I&B Code), refuses to grant relief for ineligibility under section 29A, directs Liquidator to proceed take steps according to section 230 of the Companies Act, 2013.
In the present matter of M/s. C. Mahendra International Ltd. (Appellant ) Vs Shri Naren Sheth & Anr. (Respondent), Appellant has preferred this Appeal against the order of Adjudicating Authority (National Company Law Tribunal) Mumbai Bench, dated 25th March, 2019 whereby order of liquidation under Section 33 of the Insolvency & Bankruptcy Code, 2016 (I&B Code) has been passed. Appellant submits that the Resolution Applicant had submitted a plan for Rs.6.14 crores, which was not accepted, but the Appellant has offered Rs.6.5 crores. NCLAT states that they are not inclined to grant relief the application being ineligible in terms of Section 29A.
NCLAT observes that it will not interfere with the order for liquidation. NCLAT relies heavily on its decision passed in Company Appeal (AT) Insolvency) No.224 of 2018 (Y. Shivram Prasad vs. S. Dhanapal & Ors.) where the issue for consideration before the NCLAT was observed to be as follows – “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.”
To address the aforementioned issue, NCLAT relied on its decision in “S.C. Sekaran v. Amit Gupta & Ors.─ Company Appeal (AT) (Insolvency) Nos. 495 & 496 of 2018” where it placed its reliance on the Supreme Court’s decisions in the following cases –
- ‘Swiss Ribbons Pvt. Ltd. & Anr. vs. Union of India & Ors. – Writ Petition (Civil) No. 99 of 2018’ where the SC observed in paragraph 12 that – “It can thus be seen 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. The Code is thus a beneficial legislation which puts the corporate debtor back on its feet, not being a mere recovery legislation for creditors. The interests of the corporate debtor have, therefore, been bifurcated and separated from that of its promoters /those who are in management. Thus, the resolution process is not adversarial to the corporate debtor but, in fact, protective of its interests. The moratorium imposed by Section 14 is in the interest of the corporate debtor itself, thereby preserving the assets of the corporate debtor during the resolution process. The timelines within which the resolution process is to take place again protects the corporate debtor‘s assets from further dilution, and also protects all its creditors and workers by seeing that the resolution process goes through as fast as possible so that another management can, through its entrepreneurial skills, resuscitate the corporate debtor to achieve all these ends.”
- ‘Meghal Homes Pvt. Ltd. vs. Shree Niwas Girni K.K. Samiti & Ors. – (2007) 7 SCC 753” the Hon’ble Supreme Court observed and held in the relevant paragraph 33 as follows: “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 which it is enacted, namely, the revival of a company including a company that is liable to be wound up or is being wound up and normally, the attempt must be to ensure that rather than dissolving a company it is allowed to revive. Moreover, 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. Equally, it does not appear to be necessary to go elaborately into the question whether in the case of a company in liquidation, only the Official Liquidator could propose a compromise or arrangement with the creditors and members as contemplated by Section 391 of the Act or any of the contributories or creditors also can come forward with such an application.”
NCLAT thus directed the Liquidator to proceed according to the law in S.C. Sekaran v. Amit Gupta & Ors.
Further, NCLAT made the following observations in Y. Shivram Prasad vs. S. Dhanapal & Ors. –
“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.
The last stage will be death of the ‘Corporate Debtor’ by liquidation, which should be avoided.”
Further it was observed that “ 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.
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.”
Thus, NCLAT held the following –
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.”
NCLAT dismisses the appeal and directs the Liquidator to proceed in accordance with the aforementioned order passed in Y. Shivram Prasad vs. S. Dhanapal & Ors.