Appellate Tribunal authorizes sale of non-core assets to prevent insolvency under Companies Act

The Appellate Tribunal set aside the order denying the sale of non-core assets by the Board of Directors to address financial distress and meet liabilities, emphasizing the need to prevent insolvency. The Tribunal highlighted the importance of allowing the Board to make decisions under the Companies Act to save the company from winding up. The appeal was allowed, with the respondents given the liberty to report any misuse of funds for further action.

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Issues Involved:
1. Demerger of the 'Sonepat Unit' based on the 'Memorandum of Understanding' and the 'Arbitral Award'.
2. Financial distress and operational challenges faced by the 'Sonepat Unit'.
3. Resolution passed by the Board of Directors and its implications.
4. Non-core assets sale and its necessity for financial stability.
5. Legal challenges and proceedings under the Insolvency and Bankruptcy Code (IBC).
6. Interim relief sought by the appellants and its denial by the Tribunal.
7. Historical context of the family dispute and its impact on the company.

Detailed Analysis:

1. Demerger of the 'Sonepat Unit':
The respondents filed an application seeking the demerger of the 'Sonepat Unit' based on the 'Memorandum of Understanding' dated 31st August 2003 and the 'Arbitral Award' dated 1st November 2014. The Tribunal noted the historical context, including the family dispute and the subsequent arbitration proceedings, which culminated in an award directing the division of management, control, and ownership of the company. However, the Delhi High Court set aside the arbitral award concerning 'Atlas Cycles (Haryana) Ltd.', holding that the arbitrator had no jurisdiction over the company's matters.

2. Financial Distress and Operational Challenges:
The appellants highlighted the financial distress faced by the 'Sonepat Unit', including significant losses, liquidity crunch, and mounting liabilities. The 'Sonepat Unit' posted a loss of Rs. 6.63 crores for FY 2017-18 and Rs. 2.41 crores for the quarter ending June 2018. The overall financial condition of the company was severely impacted, with the 'Sahibabad Unit' paying Rs. 21.59 crores to avoid the company's account becoming NPA, leading to a liquidity crunch. The company faced over 80 legal notices under the 'Negotiable Instruments Act' due to dishonored cheques issued by the 'Sonepat Unit'.

3. Resolution Passed by the Board of Directors:
The Board of Directors passed a resolution on 10th July 2018, seeking permission to approach consortium banks for the release of title deeds of non-core assets under the charge of the 'Sonepat Unit' to proceed with their sale. The assets included 'Atlas Steel Tube Industries', 'Atlas Auto Industries', and various residential properties. The resolution aimed to generate additional funds to stabilize the company's financial position.

4. Non-Core Assets Sale:
The appellants argued that the sale of non-core assets was imperative for a more meaningful interpretation of the Tribunal's orders and to address the financial distress. The proposed utilization of funds from the sale included paying Rs. 15 crores to consortium banks and Rs. 12 crores towards liquidation of liabilities to vendors and statutory liabilities of the 'Sonepat Unit'. The Tribunal, however, dismissed the application for sale, noting that the non-core assets of the 'Malanpur Unit' were already in the process of being sold.

5. Legal Challenges and Proceedings under IBC:
The company received notices from NCLT, Chandigarh, under Section 9 of the IBC by various suppliers/vendors of the 'Sonepat Unit'. The Tribunal observed that the impending threat of an IBC petition being admitted against the company could not be undermined. The appellants emphasized that the financial stringency was not a bogey, as all mutual funds and investments had been liquidated, and bank limits were fully exhausted.

6. Interim Relief Sought and Denial:
The appellants sought interim relief to sell non-core assets to generate funds. The Tribunal denied the relief, observing that the appellants had not infused funds into the 'Sonepat Unit' as directed in previous orders. The Tribunal noted that the appellants were pushing the 'Sonepat Unit' to penury by not infusing funds and creating a situation to file an application for direction.

7. Historical Context and Family Dispute:
The judgment detailed the historical context of the family dispute, including the 'Memorandum of Understanding' dated 8th January 1999, which aimed to split the management, ownership, and control of the companies and assets jointly owned by the family into three equal shares. The arbitration proceedings and subsequent legal challenges significantly impacted the company's operations and financial stability.

Conclusion:
The Appellate Tribunal set aside the impugned order dated 14th February 2019, allowing the Board of Directors to take decisions regarding the sale of non-core assets to meet the liabilities of 'Operational Creditors'/'Financial Creditors' and for the revival of the 'Sonepat Unit'. The Tribunal emphasized that the purpose of Sections 241 and 242 of the Companies Act, 2013, is to save the company from winding up and that the Board of Directors should be allowed to take necessary decisions to prevent the initiation of the 'Corporate Insolvency Resolution Process'. The appeal was allowed with the liberty to the respondents to bring any misuse of funds to the notice of the Appellate Tribunal for appropriate orders.

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