2018 (10) TMI 202 - AT - Insolvency and Bankruptcy

Appeal Denied: Non-compliance with Insolvency Scheme Leads to Liquidation

The appeal by 'M/s. Hada Textile Industries Ltd.' against the refusal to extend the scheme period under the Sick Industrial Companies (Special Provisions) ... Sanctioned rehabilitation scheme under BIFR - extension of sanctioned scheme - deemed resolution plan under Section 31 of the I&B Code - absence of review or extension mechanism for a scheme sanctioned under sub section (1) of Section 31 - consequence of failure to implement sanctioned scheme - liquidationSanctioned rehabilitation scheme under BIFR - extension of sanctioned scheme - Whether the Adjudicating Authority erred in refusing to extend the period of a BIFR sanctioned rehabilitation scheme. - HELD THAT: - The Adjudicating Authority declined to extend the sanctioned scheme after finding that the company failed to make its net worth positive within the sanctioned period and that there was no provision under the applicable law before it enabling review or extension of a scheme already sanctioned. The Tribunal agreed with that conclusion, noting that the scheme had expired and the company had not achieved the intended revival within the timeframe fixed by BIFR. In these circumstances the Adjudicating Authority rightly refused the prayer for extension.The refusal to extend the BIFR sanctioned scheme is affirmed and no relief for extension is available.Deemed resolution plan under Section 31 of the I&B Code - absence of review or extension mechanism for a scheme sanctioned under sub section (1) of Section 31 - consequence of failure to implement sanctioned scheme - liquidation - Whether a scheme sanctioned under sub section (4) of Section 18 of SICA, or a scheme under implementation under sub section (12) of Section 18, can be treated as an approved 'resolution plan' under Section 31 of the I&B Code so as to permit review or extension. - HELD THAT: - The Tribunal observed the appellant's contention that the amendment and notifications render a BIFR sanctioned or ongoing scheme as a deemed 'resolution plan' under Section 31(1) of the I&B Code. The Tribunal stated that it did not accept that characterization; but further held that even if such a scheme were treated as a resolution plan under Section 31(1), there is no provision enabling review or extension of a plan sanctioned under that provision. Consequently, no relief for review or extension could be granted, and failure to comply with the sanctioned scheme would lead to the consequences provided under the Code, including the prospect of liquidation proceedings.The characterization of the BIFR scheme as an approved resolution plan is not accepted, and, in any event, no statutory basis exists to review or extend a scheme under Section 31(1); hence no relief can be granted and liquidation consequences may follow for non implementation.Final Conclusion: The appeal is dismissed; the Adjudicating Authority's refusal to extend the BIFR sanctioned scheme is upheld and no statutory basis exists under the I&B Code for review or extension of a scheme allegedly deemed to be a resolution plan, with potential liquidation consequences for non implementation. Issues:1. Appeal against refusal to extend the scheme period by the Adjudicating Authority.2. Interpretation of provisions of Sick Industrial Companies (Special Provisions) Act, 1985 and Insolvency and Bankruptcy Code, 2016.3. Applicability of the scheme sanctioned under the SICA Repeal Act, 2003 in light of the I&B Code.4. Review of the scheme under the I&B Code and consequences of failure to meet scheme obligations.Analysis:The appeal was filed by 'M/s. Hada Textile Industries Ltd.' against the decision of the Adjudicating Authority refusing to extend the scheme period prepared by BIFR under the Sick Industrial Companies (Special Provisions) Act, 1985. The appellant sought an extension to implement the scheme and prevent recovery proceedings by the Government of West Bengal. The BIFR had earlier sanctioned a scheme with a cutoff date of December 31, 2002, which expired due to the company's inability to turn its net worth positive. The appellant submitted a modified draft rehabilitation scheme (MDRS) for extension, citing the provisions of the SICA Repeal Act, 2003, which saved the approved scheme from abatement.The Ministry of Corporate Affairs amended the SICA Repeal Act, 2003, in line with the I&B Code, deeming sanctioned schemes as resolution plans under the I&B Code. The Adjudicating Authority held that the scheme could be dealt with under the I&B Code's provisions, and failure to meet obligations would lead to liquidation proceedings. The Tribunal concurred with the Authority's finding that no relief could be granted to the appellant due to the absence of provisions for reviewing schemes sanctioned under the I&B Code. The appeal was dismissed, emphasizing the lack of merit and no cost implications.In conclusion, the judgment delves into the interplay between the provisions of the SICA Repeal Act, 2003, and the I&B Code, highlighting the implications of failing to adhere to sanctioned schemes and the limitations on seeking relief under the I&B Code. The decision underscores the importance of compliance with scheme obligations and the legal consequences of non-compliance in the context of insolvency and bankruptcy proceedings.