TaxTMI 
TaxTMI 
2021 (11) TMI 24
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....h, Mr. Parth Tandon Advocates for Respondent Nos. 8-11 JUDGMENT Jarat Kumar Jain: J. The Adjudicating Authority (National Company Law Tribunal, Hyderabad) passed an order under Section 10 of IBC on 20.09.2017 for initiating Corporate Insolvency Resolution Process (CIRP) and passed an order of liquidation under Section 33 of IBC on 03.06.2019 against the M/s Nizam Deccan Sugars Ltd. (NDSL) (Corporate Debtor).The Company Appeal (AT) (Ins) No. 745 of 2019 is preferred against the order of liquidation whereas Company Appeal (AT) (Ins) No. 818 of2019 is preferred against the orderof initiating CIRP against the Corporate Debtor NDSL. 2. Background of the Appeals are that the State of Telangana, and Director of Sugar & Cane Commissioner, Hyderabad have filed the Appeal against the order of liquidation against NDSL, Delta Paper Mills Ltd. (DPML) and Financial Creditors of the NDSL. When this Appeal came up for hearing on 24.07.2019 before this Appellate Tribunal, the Appellants requested to allow them to implead Nizam Sugars Ltd as Appellant No. 3 and also allow to challenge the order of initiating CIRP under Section 10 of the IBC. This Tribunal has allowed both the prayers how....
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....tor about the decision, initiate CIRP against the Corporate Debtor (ii) no affirmative vote of the nominee, director of the NSL was taken prior to/during the passing of the Board Resolution dated 30.03.2017. The shareholders of the Corporate Debtor were not informed prior to passing of the aforesaid Board Resolution nor was any shareholder approval subsequently taken. Such Board Resolution is void ab initio as contrary to the Article of Association of the Corporate Debtor. On the basis of aforesaid Board Resolution VR Chary, the Chief Financial Officer of NDSL had filed the petition u/s 10 of the IBC to initiate CIRP. Ld. Adjudicating Authority vide impugned order dated 20.09.2017 admitted the Petition and initiated CIRP against the Corporate Debtor and Rama Krishna Gupta appointed as Interim Resolution Professional (IRP) and declared moratorium. 7. Thereafter the IRP made a public announcement on 23.09.2017 intimating the commencement of CIRP in the matter of NDSL, inviting the Creditors to submit their claims. In response, Financial Creditors Andhra Bank, Syndicate Bank and UCO Bank have filed their claims and CoC was constituted on 20.10.2017. The first CoC was held on the sa....
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....of delay on the ground that the Appellants were not aware of the fraud and suppression of material facts perpetrated by the Corporate Debtor in initiating the CIRP against the Corporate Debtor, which led to the impugned order having been passed. The Corporate Debtor played fraud upon the Appellants by not informing them about the necessity of obtaining a special resolution from the shareholders of the Corporate Debtor prior to passing the board resolution dated 30.03.2017, the necessity of obtaining the affirmative vote of the nominee director of the Nizam Sugars Ltd (NSL). The fraud discovered when an Appeal was preferred on 11.07.2019 against the order of liquidation dated 03.06.2019. Therefore, the period that elapsed from passing of the impugned order to be discovery of fraud be excluded for computing the period of limitation. It is stated that this Hon'ble Tribunal acceded to the request vide order dated 24.07.2019 allowed the Appellants to challenge the order of Admission within ten days. In the light of the aforesaid facts and circumstances the delay of 748 days in filing the Appeal may be condoned. 9. The Respondent No. 1 & 2 filed the Reply of the Application for condon....
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....r Section 10 IBC was also noted and approved. The matter pertaining to filing of application under Section 10 IBC was also placed before the shareholders in the AGM.In the present case order of admission made prior to substitution of amendment dated 06.06.2018,therefore,there is no requirement of special resolution of the shareholders of the Corporate Debtor, even without taking consent of the shareholders through a special resolution in an AGM/EGM application under Section 10 IBC can be filed for this proposition cited the decision of this Appellate Tribunal in the case of Umesh Aggarwal Vs. Ricoh India Pvt. Ltd. (2019) 214 Company Cases 490 and Amit Gupta Vs. Yogesh Gupta (2020) 158 SCL 301. 11. The Respondent No. 3 to 7 havealso opposed the application for condonation of delay and the Appeal on the aforesaid grounds taken by the Respondent No. 1 & 2. 12. The Respondent No. 8 to 11 in their Reply opposed the Application and the Appeal on the same grounds which were taken by the Respondent No. 1 & 2. 13. The Respondents resisted the Appeal against the order of liquidation on the ground that the allegations raised in the Appeal are false and frivolous and does not const....
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....of Gaja Trustee Company Pvt. Ltd. (Supra) and Vandana Industries Ltd. Vs. IL & FS Financial Services Ltd. & Anr. CA(AT) (Ins) No. 630 of 2018 decided on 01.02.2019. 17. On the other hand, Ld. Counsel for appearing on behalf of the Respondent No. 1 & 2 submitted that the Board resolution dated 30.03.2017 passed in the presence of Mr. Bhadru Malloth, nominee director of NSL. Therefore, it cannot be said that the resolution was passed without consent of the director nominated by NSL. It is submitted that in Section 10 of the IBC was amended w.e.f 06.06.2018 in which the provision was inserted that the special resolution passed by shareholders of the Corporate Debtor may approvefiling of the Application under Section 10 of the IBC. Such amendment is subsequent to initiation of CIRP. Therefore, this amendment is not applicable to the present case. It is also submitted that after passing of the resolution the authorized person has filed the Application under section 10 of the IBC and the Appellants have not raised any objection before the Adjudicating Authority that the Application under Section 10 of the IBC is not maintainable, therefore, at a belated stage when the liquidation is o....
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....same is not applicable. It is also submitted that the claims made by the Financial Creditors involves public money and the Financial Creditors being a public financial institutions have a right to recover their legit dues. There is no dispute on the claim amount filed by the Financial Creditor and the same has been admitted by the RP of the Corporate Debtor. 21. Lastly, it is submitted that in the event of any fraud committed by the private management of the Corporate Debtor as alleged by the Appellants, the same is the internal matter of the Corporate Debtor and the private management,Financial Creditors have no role to play in any of it. 22. After hearing Ld. Counsel for the parties, we have gone through the record and the citations. 23. Firstly we would like to analyse the ratio of the Judgments cited by the Ld. Counsels for the parties. In the case of Gaja Trustee Company Pvt. Ltd. (Supra), this Appellate Tribunal after elaborate discussion held that the decision ofliquidation, dissolutionor winding up of the Company should be taken strictly as per the provisions of AoA. If any resolution for liquidation or winding up of the company is passed ignoring the provisions of....
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....pellant relied on the Judgment of Gaja Trustee (Supra). After considering this Judgment, it is held that in the case of Gaja Trustee (Supra) this Appellate Tribunal had referred to the Articles of Association of the Corporate Debtor in that matter and in that context considered the said Appeal and found that no decision had been taken by the shareholders in their Extraordinary General Body meeting and the Application under Section 10 of the IBC was filed by person authorized by the Board of Directors which was not maintainable. Whereas in the case of Amit Gupta (Supra) the Appellant Amit Gupta himself is a holder of 93.30 % of shareholding of the Corporate Debtor and the remaining shares with Shayam Lal Gupta and which is apparent from the proposed resolution plan. Therefore, it is observed that, the Appellant holding 93.30% can hardly claim that decision of AGM/EGM is or was necessary. Thus, the Appeal was rejected. 26. With the aforesaid, we can say that the Judgments which are relied upon by the Ld. Counsel for the Respondents are not helpful to them and the ratio of the Judgment in Gaja Trustee (Supra) holds thefield. 27. Now, we would like to refer the relevant paragraph....
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.... the provisions of the Companies Act the Company and the members are bound by the provisions contained in the Articles of Association. The Articles regulate the internal management of the Company and define the powers of its officers. They also establish a contract between the Company and the members and between the members inter se. the contract governs the ordinary rights and obligations incidental to membership in the Company. In the absence of any provisions contained in the Indian Companies Act which prohibit a Company from forfeiting a share for failure on the part of the member to carry out an undertaking or an engagement the Articles of a Company which provide that in certain events membership rights of the shareholder including his right to the share will be forfeited are binding. The Articles of Association of the Exchange expressly provide that in the event of the member failing to carry out the engagement and in the conditions specified therein his share shall stand forfeited. Articles 22, 24, 26, 27 and 29 of the Exchange relating to forfeiture of shares in certain events are therefore valid." 35. The Hon'ble Supreme Court in "Life Insurance Corporation of Ind....
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....nises that the analogy of the legislature and the executive in relation to the members in general meeting and the Directors of a Company is an over-simplification and states "to some extent a more exact analogy would be the division of powers between the Federal and the State Legislature under a Federal Constitution." As already noticed, the only effective way the members in general meeting can exercise their control over the Directorate in a democratic manner is to alter the articles so as to restrict the powers of the Directors for the future or to dismiss the Directorate and appoint others in their place. The holders of the majority of the stock of a corporation have the power to appoint, by election, Directors of their choice and the power to regulate them by a resolution for their removal. And, an injunction cannot be granted to restrain the holding of a general meeting to remove a director and appoint another." 36. In view of the aforesaid decision of the Hon'ble Supreme Court and other Hon'ble Courts, we hold that the Article 1.1.3; 9.1 and 9.2 are binding on all the 'shareholders' as also on the 'Board of Directors' as also on 'the Company'. We have already held th....
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.... c....... d....... e. All transactions regarding building and land, including the lease, purchase, sale and mortgage of these assets; f. Sale or disposal of any material assets of NDSL, in excess of such sum or value as may be determined by affirmative vote of 4 directors, other than sales or disposals already approved in the Annual Budget and business and investment plan; g. ... h.... i....... j...... k....... l....... m.... n. Doing of anything that would result in NDSL coming under the control of any other company or person; o. p. q. s. t. u. Dissolution or voluntary liquidation of NDSL. 30. It is apparent that Sale or disposal of any material assets of NDSL, in excess of such sum or value as may be determined by affirmative vote of 4 directors, other than sales or disposals already approved in the Annual Budget and business and investment plan, all transactions regarding building and land, including the lease, purchase, sale and mortgage of these assets, doing of anything that would result in NDSL coming under the c....
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.... of the company put forwards the Board the provisions relating to the Insolvency and Bankruptcy Code of India (IBC) and the process involved therein to apply before the National Company Law Tribunal (NCLT) for Insolvency Resolution. The Insolvency and Bankruptcy Code, 2016 (IBC) is a new Act recently enacted by the Government to consolidate various other laws and provisions for dealing with insolvency. ***************** ***************** In view of the above, it is advisable for the board to take immediate action and file application with NCLT before the expiry of 180 days. In accordance with the above stated provisions, the boards of directors of the company is requested to take note of the same and pass the following resolution to make an application to the NCLT. After due deliberations, the board of directors have passed the following resolutions. Resolved Thatpursuant to the provisions of the Insolvency and Bankruptcy Code of India (IBC), 2016 and other applicable provisions, if any and subject to the approval of such other authorities as may be required, the board has taken note of the repealing of board for indust....
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....ication is not maintainable for want of affirmative vote of nominee director of NSL. For the said reason the application under Section 10 filed by the VR Chary the Chief Financial Officer of NDSL was not maintainable. We also hold that the Board resolution dated30.03.2017 is void ab initio as it was passed without securing affirmative vote of the nominee director of NSL. Issue No. (ii) Whether the Appeal against the order of admission is barred by limitation? 38. Admittedly the order of admission was passed on 20.09.2017 and subsequently the order of liquidation was passed on 03.06.2019. when the Appeal against the order of liquidation came up for hearing on 24.07.2019, before this Appellate Tribunal the Appellants requested to allow them to challenge the order of admission. This Tribunal allowed the Appellants to file the Appeal within 10 days then on 07.08.2019 the Appellants have filed CA (AT) (Ins) No. 818 of 2019 against the order of admission. Apparently, the Appeal has been filed with a delay of 748 days. 39. For condonation of delay the Appellants have taken two grounds (i) The Appellants were not aware of the fraud and suppression of the material facts perpe....
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....r the Judgment of Hon'ble Supreme Court in the case of State of M.P. V/s Syed Qamarali (Civil Appeal No. 248 of 1960 decided on 08.03.1961). Para 20 is as under: "20. We therefore hold that the order of dismissal having been made in breach of a mandatory provision of the rules subject to which only the power of punishment under Section 7 could be exercised, is totally invalid. The order of dismissal had therefore no legal existence and it was not necessary for the Respondent to have the order set aside by a court. The defence of limitation which was based only on the contention that the order had to be set aside by a court before it became invalid must therefore be rejected." 45. Thus, the Appeal is time barred such defence is not maintainable. Issue No. (iii) Whether material irregularity committed by RP in conducting the CIRP of the Corporate Debtor.? 46. Learned Senior Counsel for the Appellants submitted that the private management of Corporate Debtor interested to sale the assets of the Corporate Debtor, to achieve this object the RP and the private management of the Corporate Debtor are hand in glow in managing the CIRP of the Corporate Debtor. The RP dec....
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....P does not derail the resolution of the Corporate Debtor. Ld. Adjudicating Authority noticing the intention of State of Telangana extended the duration of CIRP by excluding 78 days being the time spent in adjudicationof the application for granting permission for sale of land and further gave liberty to the State of Telangana to file a resolution plan. However, the State of Telangana could not take any further steps to achieve resolution of the Corporate debtor as the time granted by the Adjudicating Authority expired on 02.09.2018. If the RP had sought for exclusion of the duration of adjudication of the Application filed by the Appellant State of Telangana and an additional period of 81 days is provided for completion of CIRP. The State of Telangana could have revived the Corporate Debtor by finding or through submitting a resolution plan. 48. Learned Senior Counsel for the Appellant further submitted that the RP conducted CIRP against the interest of the Corporate Debtor. The CIRP cost have been consistently paid by the private management of the Corporate debtor. Such cost should have been paid by the financial creditors as per the regulation no. 3 & 5 of the 1st Schedule of ....
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....ent of Telangana to arrange funds. However, they never turned up. The Secured Financial Creditors of the Corporate Debtor pooled resources for two months in September, 2018 and October, 2018 summing up to Rs. 26,84,722/-. Thereafter, the Financial Creditor had expressed their inability to raise interim finance/CIRP cost of the Corporate Debtor. Thus, as a last resort the interim finance was funded by the private management, further, RP placed an agenda item for discussion at every meeting of CoC for ratifying the expenditure incurred and that every notice alongwith agenda of every CoC meeting had been shared with the Appellants for inviting them to attend the meeting. The Appellants during the CoC meetings or before the Adjudicating Authority never raised any objection in this regard. 51. Ld. Counsel for the Respondent No. 1 & 2 further submitted that the Regulation 36-A which provides that the publication of Form-G in one English and one in regional language newspaper with wide circulation such amendment was inserted with effect from 04.07.2018. Whereas, in the present case the publication in the newspapers was made on 16.05.2018. Regulation 36-A did not mandate the publication....
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....ays. The Appellants are aware of the entire process since BIFR and also that of CIRP. Hence, they cannot plead ignorance. 54. Ld. Counsel for the Respondent No. 1 & 2 lastly submitted that allegation that the RP has not filed an Application for exclusion of time lost during CIRP is not correct. After passing of the order dated 03.09.2018 the Appellants did not ask the RP to seek exclusion to time consumed under I.A. No. 213 of 2018 to enable filing of resolution plan. It is also pointed out that no resolution plan was received to the RP within/after expiry of CIRP period. Consequently, when there is no receipt of resolution plan Section 33 of the IBC is inevitable. Since, there is no resolution plan, the members of CoC unanimously passed the resolution to liquidate the Corporate Debtor and authorized RP to file an Application for liquidation. Thereafter, the RP received letter from Director of Sugar &Cane Commissioner, Hyderabad vide G.O. MS No. 28 dated 06.09.2018 the State Government is not authorized to file the resolution plan to revive Corporate Debtor due to dissolution of first Legislative Assembly. In such circumstances, the RP filed the Application before the Adjudicati....
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....re part of the Reply of R1 available at Pg. 960 to 1033 Volume IV. There is nothing on record to show that these communications were not received by the Appellants. 60. The Appellants filed claim of Rs. 50.91 Crores on 05.10.2017 at the time of invitation of claims by IRP (Annexure R-18 at Pg. 835 to 867 Reply of R1 Volume IV). The RP immediately after his appointment approached the State of Telangana and sought appointment to meet in person to understand the thinking of Government of Telangana in reviving the Company as per the Government G.O. MS No. 28 dated 29.04.2015 through email dated 04.11.2017, 06.11.2017 and 14.11.2017. The Respondents have placed on record the letter of RP dated 18.11.2017 which is reply of the Appellants letter dated 01.11.2017 and 13.11.2017. In the aforesaid letter the RP informed the Appellants that the CIRP is a time bound process to be completed within 180 days and if no resolution plan is forthcoming within such period the Corporate Debtor Company will step into liquidation (Letter is at Pg. 530 to 532 Reply of R1 Volume III). 61. With the aforesaid, it cannot be said that the Appellants were unaware with the CIRP and the RP approached the Ap....