TaxTMI 
TaxTMI 
2022 (3) TMI 698
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....r the Scheme under Section 230 of the Companies Act, 2013 submitted by the Respondent Nos. 2 & 3 and in the meantime, no further steps were directed to be taken with regard to the auction of the assets of the Corporate Debtor. The brief facts of the case and sequence of the events necessary to be noted for deciding the issue raised in this Appeal are: The Liquidation Process was initiated against the Corporate Debtor i.e. 'M/s. Shree Bhawani Paper Mills Limited' by order dated 07.07.2021 passed by the Adjudicating Authority in CP(IB) No. 110/ALD/2017. The Ex-Managing Director of the Corporate Debtor Shri Badri Vishal Tandon died on 12.07.2021. On 18.09.2021, Smt. Meenu Tandon, wife of late Badri Vishal Tandon, wrote to Liquidator informing that her husband Badri Vishal Tandon was the largest shareholder of the Corporate Debtor holding 14.6% shares and as per his WILL she has inherited all his shares and has now become the largest shareholder of the Company. Liquidator was requested to appoint Smt. Meenu Tandon as member of the Stakeholders Consultation Committee (SCC). Liquidator vide e-mail dated 20.09.2021 informed Smt. Meenu Tandon that Shri Badri Vishal Tandon was holding 12....
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....with the assets of the Corporate Debtor. Meeting of the Stakeholders Consultation Committee took place on 22.10.2021 where the Liquidator informed about the eligibility of the Respondent Nos. 2 and 3 to propose a Scheme of Compromise or Arrangement. Liquidator sought views/ vote of the members present on the Scheme. According to the minutes, 59.66% voted against the Scheme and it was recorded in the minutes that in terms of Section 230(6) of the Companies Act, 2013, an approval of 75% in value of the creditors is required. Hence, on the basis of the voting, Liquidator declared that the Scheme has not been approved by the Creditors during the Stakeholders Consultation Committee meeting. After declaring that Scheme has not been approved, the Liquidator sought permission of the Stakeholders Consultation Committee members to call Mr. Akshat Tandon for presentation and took vote and according to minutes, 91.35% voted against the presentation of the Scheme by Respondent No.2. It was further resolved by the Stakeholders Consultation Committee that e-auction for 25.10.2021 be continued. The Liquidator informed that only one person has given Expression of Interest along with EMD. As per ....
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....od of 90 days prescribed for completion of entire process under Section 230 of the Companies Act, 2013. It is submitted that the impugned order has been passed in violation of principles of natural justice since the Appellant was not arrayed as a party to the proceeding and I.A No. 314 of 2021 had become infructuous at the time of passing of the impugned order. It is submitted that the Sale Certificate was issued on 30.12.2021 in favour of the Appellant who has made all payments. 3. Shri Tarun Gulati, Learned Senior Counsel appearing for Respondent Nos. 2 and 3 refuting the submissions of Counsel for the Appellants contends that entire process adopted by the Liquidator with regard to Scheme of Compromise or Arrangement submitted by Respondent Nos. 2 and 3 is contrary to the provisions of the Code and Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016. When a Scheme of Compromise or Arrangement was submitted to the Liquidator well within 90 days from initiation of liquidation process, it was incumbent on the Liquidator to file an Application before the Adjudicating Authority for consideration and passing appropriate order. The Liquidator was not requ....
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....icating Authority, this Court on 23.11.2021 passed only an interim order. It was not open for the Liquidator during the pendency of the Appeal to issue Sale Certificate in favour of the Appellant. The Appeal filed by the Appellant has not yet allowed and the Liquidator to unduly benefit the Appellant has proceeded to issue Sale Certificate as well as assets to the Appellants. It is submitted that in the auction notice the reserve price mentioned was Rs. 45 crore. In the scheme, which was submitted on 04.10.2021, the Respondent No.2 has valued the Scheme as Rs. 45.21 Crore and the sole bid placed by the Appellants was for Rs. 45.30 Crores. It was submitted by the Learned Counsel for the Appellants that information regarding value of the Scheme was leaked to the Appellant that is why he gave an offer of Rs. 45.30 Crores. The auction which was held on 25.10.2021 was against the provisions of the Code and Regulations and is a result of illegalities committed by the Liquidator. 5. Shri Abhishek Anand, Learned Counsel for the Liquidator submits that the order passed by the Adjudicating Authority suffers from infirmity and contrary to the Code. It is submitted that the Scheme was submi....
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....at before taking steps to sell the assets of the Corporate Debtor, the Liquidator is to take steps in terms of Section 230 of the Companies Act, 2013. This Tribunal in "S.C. Sekaran vs. Amit Gupta- Company Appeal (AT) (Ins.) No. 495 & 496 of 2018" laid down following:- "Before taking steps to sell the assets of the 'corporate debtor(s) (companies herein), the Liquidator will take steps in terms of Section 230 of the Companies Act, 2013. The Adjudicating Authority, if so required, will pass appropriate order. Only on failure of revival, the Adjudicating Authority and the Liquidator will first proceed with the sale of company's assets wholly and thereafter, if any possible to sell the company in part and in accordance with law." 9. Further, in "Y. Shivram Prasad vs. S. Dhanpal- Company Appeal (AT) (Insolvency) No. 224 of 2018" again in paras 13 and 14, following was held:- "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 fo....
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....he scheme of Compromise & Arrangement i.e. Mr. Akshat Tandon and Ecofirt PTE. Ltd. and Presentation of the scheme to SCC The Liquidator apprised that as per the provisional eligibility report forwarded by the Liquidator vide email dated 14th October, 2021, the Liquidator had formed an opinion that both the above proposers of the scheme were not eligible due to the reasons mentioned in the said report. Subsequently, Mr. Akshat Tandon had sent to the Liquidator relevant circulars of MSME ministry and RBI mentioning that on the basis of these circulars they are eligible. Thereafter, the Liquidator had conducted its own due diligence and after examination, the Liquidator on the basis of additional information declared that both the proposers of the scheme eligible under Section 29A in terms of Section 240 A of the Code. A complete revised report of the Liquidator is enclosed for perusal of the Stakeholders. The Liquidator thought it pertinent to convey that the said scheme was to be submitted within 90 days of the Liquidation Commencement dated (i.e. by 4th October, 2021- LCD date being 7th July, 2021) and the email proposing the scheme was also received by the Liquid....
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.... Voted against- 59.66% Voted in favour- 3.93% Did Not vote- 33.91% Not Present- 2.51% Since in terms of Section 230 (6) of the Companies act 2013, an approval of 75% in value of the creditors is required for approval of the scheme, the Liquidator on the basis of the above voting results declared that the said scheme has not been approved by the creditors during the SCC meeting. The legal Counsel present in the meeting apprised the stakeholders about the provisions of Section 230 of the Companies Act, 2013 as well as the requisite voting share required for approval of a Scheme of Compromise of Arrangement. The Liquidator presented before the SCC and sought their advice for inviting Mr. Akshat Tandon to make his presentation on the scheme to SCC. Since one of the major objector raised by Mr. Akshat Tandon in his email dated 22nd October, 2021 was that the Liquidator has not given him the opportunity to present the said scheme to SCC, the Liquidator sought permission of the SCC members to call Mr. Tandon for presentation and took the vote one by one and the results of voting is as under:- S. No. Category Secured/Unsec....
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.... the consultation committee, he shall record the reasons for the same in writing." 14. Sub-regulation (9) of Regulation 31A provides that the advice of the Stakeholders Consultation Committee shall be taken by a vote of not less than sixty-six percent and further sub-regulation (10) states that said advice is not binding on the Liquidator. The action of the Liquidator in placing the Scheme of Compromise or Arrangement before the Stakeholders Consultation Committee was uncalled for and is not in accordance with the provisions of the Code and the Regulations. Section 230 of the Companies Act read with Regulation 2B of the Liquidation Regulations indicates that it is the Liquidator who is to take a decision as to whether Scheme for Compromise or Arrangement is to be placed before the Tribunal by an Application or not. When sub-regulation (1) of Regulation 31 specifically refers to advice of Stakeholders Consultation Committee on the matters relating to sale under Section 32, the Stakeholders Consultation Committee was not any competent forum for obtaining any advice with regard to Scheme for Compromise or Arrangement submitted under Section 230. 15. Apart from the above, we now ....
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....postal ballot, agree to any compromise or arrangement and if such compromise or arrangement is sanctioned by the Tribunal by an order, the same shall be binding on the company, all the creditors, or class of creditors or members or class of members, as the case may be, or, in case of a company being wound up, on the liquidator and the contributories of the company." 17. Section 230 (6) refers to a meeting held in pursuance of sub-section (1) i.e. in pursuance of meeting directed by the Tribunal on an Application filed by the Liquidator. In the present case, no meeting was convened under Section 230(1), hence, there is no applicability of Section 230(6). Reliance on Section 230(6) was wholly out of place and was uncalled for. The above holding that the Scheme of Compromise or Arrangement submitted by the Respondent Nos. 2 and 3 has not been approved by the Creditors during the Stakeholders Consultation Committee meeting, referring to Section 230(6) indicates misconception of the whole statutory procedure by the Liquidator. Further, we have already noticed that under sub-regulation (9) of Regulation 31A, the advice of Stakeholders Consultation Committee is to be taken by a vote of....
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....oceed with auction was consequent to rejection of the Scheme submitted by Respondent Nos. 2 and 3 which also held to be contrary to the statutory Scheme and statutory requirements. 21. During the submissions before us as well as in the meeting of the Stakeholders Consultation Committee, reliance has been placed by the Appellants as well as the Liquidator on Section 230(2)(c). Shri Arun Kathpalia, Learned Senior Counsel for the Appellants submits that any scheme for corporate debt restructuring is to be consented by not less than 75% of the secured creditors and unless there is consent of 75% of secured creditors, no Application for compromise or arrangement can be entertained by the Liquidator. He submits that fulfilment of requirement under Section 230(2)(c) is a condition precedent for consideration of any scheme or to make arrangement. Learned Counsel for the Respondent Nos. 2 and 3 submitted that Section 230(2) (c) i.e. requirement of not less than 75% of the consent of the Corporate Debtor is not a condition precedent. Section 230(2) is as follows: "230. Power to compromise or make arrangements with creditors and members.- .................(2) The company ....
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....ing or alteration of terms of the instrument, generally adversely affecting the interest of the instrument holder. For example, elongating the repayment terms of a loan, or reducing security. In ISDA definitions, restructuring as a credit event is defined as events as a result of which the terms, as agreed by the reference entity or governmental authority and the holders of the relevant obligation, governing the relevant obligation have become less favourable to the holders that they would otherwise have been. These events include a reduction in the principal amount or interest payable under the obligation, a postponement of payment, a change in ranking in priority of payment or any other composition of payment." 24. Learned Counsel for the Appellant has also relied on the definition of 'corporate debt restructuring' in "Glossary of Key Terms and Concepts" from the Development Co-operation Report, which is to the following effect:- "Definition: Any action officially agreed between creditor and debtor that alters the terms previously established for repayment. This may include forgiveness (extinction of the loan), or rescheduling which can be implemented either ....
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.... not a proper procedure. Respondent No.2 after receiving the email from Liquidator on 21st October, 2021 that the Liquidator has changed her opinion and held Respondent Nos.2 and 3 eligible to submit Scheme on the same day, that is, 21st October, 2021, Respondent No. 2 sent an email to Liquidator requesting to give reasonable opportunity to clarify the Scheme before Members of the Stakeholder Consultation Committee. By the email dated 21st October, 2021 following was communicated to the Liquidator by Respondent Nos.2 and 3: "Without prejudice to the rights and remedies of the undersigned as available under the law of the land, the undersigned states that - a) You being the Liquidator of the CD did not explore revival of the CD with 90 days of liquidation commencement date as mandated under Regulation 2B of IBBI (Liquidator Process) Regulations, 2016. Also, in view of catena of judgments rendered by the Hon'ble Supreme Court of India and Hon'ble NCLAT and NCLT, it has been stressed that revival of the CD is paramount in place of rigorous of liquidation of the CD. Further, preference shall always be given to the Scheme, if any submitted by the Shareholders/ creditor....
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.... and 3 and when it was disapproved, the Liquidator submitted another proposal before the Committee as to whether the Respondent Nos. 2 and 3 be permitted to present their Scheme before the Stakeholder Consultation Committee, which obviously got rejected since Scheme had already been disapproved by the Stakeholder Consultation Committee, prior to this item being taken for consideration. It was incumbent to the Liquidator to first put the Resolution before the Stakeholder Consultation Committee as to whether Respondent Nos. 2 and 3 be permitted to present and clarify their Scheme, which was not done to the prejudice of Respondent Nos.2 and 3. The persons, who submitted the Scheme that is Respondent Nos.2 and 3 could not get any opportunity to present their Scheme before the Financial Creditors and obtain their consent. The Liquidator after declaring the Respondent Nos.2 and 3 eligible on 21st October, 2021, got the Scheme disapproved on the next day in the meeting dated 22nd October, 2021 without giving any opportunity to Respondent Nos.2 and 3 to appear before Stakeholder Consultation Committee or to approach the Financial Creditors for getting their consent to the Scheme. Prior to ....
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....nfirm. Thanking You Meenu Tandon Annexure: as above." 31. The aforesaid claim was rejected by the Liquidator on 20.09.2021 by following Reply:- "Dear Sir, As per the latest shareholding pattern which was filed with BSE for quarter ending June, 2017, the largest shareholder is Mr. O.P. Goenka holding 13.48 percent of shares in Individual capacity. Also be informed that Mr. Badri Vishal Tandon was holding 12.97 percent of shares in Individual capacity and holding 1.63 percent of shares as HUF. Accordingly, the shareholder with highest shareholding in individual capacity is being included in the SCC. Thanks & Regards, On behalf of Anju Agarwal Liquidator- Shree Bhawani Paper Mills Limited" 32. From e-mail which was sent by the Liquidator itself, it is clear that Late Badri Vishal Tandon was holding 12.97% of shares and holding 1.63% shares as HUF. When these two figures are added, the figure comes 14.50% which was more than 13.48%, whom the Liquidator has permitted in the meeting of the Stakeholders Consultation Committee. It is further relevant to notice that after rejection of the claim o....
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....idered and she took all steps to get the Scheme rejected so that she may proceed with the auction which she has already fixed for 25.10.2021. Further conduct of the liquidator after passing of the interim order by this Court on 23.11.2021 to proceed to issue Sale Certificate, disbursing the amount is also not an appropriate action when the Appeal was entertained by this Tribunal and was under consideration and the Liquidator was represented by a counsel, even on the first day, the Liquidator could have asked for clarification and further direction for permitting the liquidator to proceed with the finalisation of the sale and distribution of assets, delivery of possession of the assets to Successful Bidder, which was not done. 34. The Successful Bidder is in Appeal and his Appeal has not been allowed, only an interim order has been passed on 23.11.2021 staying the order dated 01.11.2021. It is further to be noted that I.A 314 of 2021 was not finally disposed off and order dated 01.11.2021 was an interim order passed by the Adjudicating Authority and the Application is still pending before the Adjudicating Authority. There was no such great hurry in proceeding to issue Sale Certif....