Tribunal Upholds Liquidation Order, Emphasizes IBC Compliance

The Tribunal upheld the liquidation order challenged by the Promoter/Director and Shareholder of the Corporate Debtor, emphasizing that settlement opportunities must align with specific stages outlined in the IBC. ARCIL's challenge against the CoC's decision was dismissed, leading to the liquidation order due to the lack of viable Resolution Plans. The Tribunal clarified settlement stages under the IBC and directed the Liquidator to explore revival options before resorting to liquidation, emphasizing compliance with the IBC and Section 230 of the Companies Act, 2013 to safeguard the Corporate Debtor's interests.

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Issues Involved:
1. Challenge to the liquidation order by the Promoter/Director and Shareholder of the Corporate Debtor.
2. Challenge by the Asset Reconstruction Company (India) Limited (ARCIL) against the Committee of Creditors' decision.
3. Legal provisions and stages for settlement under Sections 7, 9, or 10 of the Insolvency and Bankruptcy Code (IBC).
4. Steps to be taken by the Liquidator during the liquidation process.
5. Applicability of Section 230 of the Companies Act, 2013 during liquidation.

Issue-wise Detailed Analysis:

1. Challenge to the Liquidation Order by the Promoter/Director and Shareholder of the Corporate Debtor:
The Promoter/Director and Shareholder of M/s. Servalakshmi Papers Ltd. (SPL) challenged the liquidation order passed by the Adjudicating Authority (National Company Law Tribunal), Division Bench, Chennai, on the grounds of arbitrariness and unreasonableness. The Promoter argued that an opportunity should have been given to the promoters to settle the matter. However, the Tribunal found that such a submission could not be accepted at this stage because the settlement could only occur at specific stages as outlined in the IBC.

2. Challenge by the Asset Reconstruction Company (India) Limited (ARCIL) Against the Committee of Creditors' Decision:
ARCIL, a Financial Creditor and Resolution Applicant, challenged the Committee of Creditors' (CoC) decision to vote against their Revised Resolution Plan. Despite ARCIL and Sripathi Papers and Boards (P) Limited submitting and revising their Resolution Plans, the CoC did not find them viable and feasible, leading to the liquidation order. ARCIL contended that the CoC's decision was erroneous.

3. Legal Provisions and Stages for Settlement Under Sections 7, 9, or 10 of the Insolvency and Bankruptcy Code (IBC):
The Tribunal clarified that settlements could occur at three stages:
i. Before the admission of the application under Sections 7, 9, or 10.
ii. After settlement is reached by Promoters/shareholders with the Applicant but before the constitution of the CoC, as per the Supreme Court's decision in "Swiss Ribbon Pvt. Ltd. & Anr. v. Union of India & Ors."
iii. Under Section 12A, which allows withdrawal of the application with the approval of ninety percent voting share of the CoC.

4. Steps to be Taken by the Liquidator During the Liquidation Process:
During liquidation, the Liquidator must ensure that the company remains a going concern and take measures for the revival of the Corporate Debtor. The Tribunal referred to the case "S.C. Sekaran v. Amit Gupta & Ors." and emphasized that the Liquidator should take steps under Section 230 of the Companies Act, 2013, for compromise or arrangement with creditors. If revival fails, the Liquidator should sell the business of the Corporate Debtor as a going concern, and as a last resort, proceed with the liquidation of assets.

5. Applicability of Section 230 of the Companies Act, 2013 During Liquidation:
The Tribunal highlighted that Section 230 of the Companies Act, 2013, allows for compromise or arrangement with creditors or members even during liquidation. The Liquidator should verify claims, take custody of assets, and carry on the business for beneficial liquidation. If a compromise or arrangement is proposed, the Liquidator must move an application under Section 230 before the Adjudicating Authority. The Tribunal must ensure that the scheme is viable, feasible, and aligns with the objectives of the IBC, balancing the interests of all stakeholders.

Conclusion:
The Tribunal directed the Liquidator to act in accordance with the IBC and Section 230 of the Companies Act, 2013, to explore revival options before proceeding with the liquidation. The appeals were disposed of with these observations and directions, emphasizing the need to protect the Corporate Debtor from liquidation and ensure the continuation of its business.

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