TaxTMI 
TaxTMI 
2022 (3) TMI 698
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....nies 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 12.97 percent of shares in individual capacity ....
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....ing 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 the aforesaid decision in meeting of 22.10.2021....
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....rocess 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 required to obtain votes on the Scheme in the Stakeholder....
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.... 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 submitted by Respondent Nos. 2 and 3 one day before expiry of ....
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.... 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 follows:- (i) By compromise or arrangement with the creditors, or class of creditors or members or class of member....
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.... 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 Liquidator on the 90th day. SCC also took note of the opinion of Mr. Abhishek Anand as put up in the Agenda and also the voting share of the creditors as put up in ....
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....uring 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/Unsecured Voting % claims/ debt of Voted in favour/against the presentation by Mr. Akshat Tandon 1 Financial Creditor- JM Financial Asset Reconstruction Company Limited Secured 55.86% Voted against 2 Financial Creditor- Bank of Baroda Secured 33.91% Voted against 3 Representatives Unsecured Creditors of Financial Orion I.T. Parks Pvt. Ltd. Suchitra Tandon 3.93% Voted in favour Voted in favour....
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....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 need to notice the minutes of the Stakeholders Consultation Committee dated 22.10.2021 to find out the decision taken by the Stakeholders Consultation Committee and the Liquidator. After taking views and votes of all members present in the Stakeholders Consultation Committee, it is recorded in the minutes that 59.66% voted against the Scheme. After noting the voting percentage, following is recorded in the minutes:- "Since in terms of Section 230 (6) of the Companies act 2013, an approval of 75% in value of the creditors is require....
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....nder 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 not less than 66%. Thus, the advice of Stakeholders Consultation Committee with regard to the Scheme was not 66% since voting percentage noticed by the Liquidator is following:- "Result for voting- Voted against- 59.66% Voted in favour- 3.93% Did Not vote- 33.91% Not Present- 2.51%" 18. When an advice of rejection of the Scheme is not by 66%, there was no question of following the said advice of the Stakeholders Consultation Committee by the Liquidator and act of Liquidator in relying on the said advice amounts to abdication of her own duty to consider the Scheme and shield....
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....ion 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 or any other person, by whom an application is made under subsection (1), shall disclose to the Tribunal by affidavit- (a) all material facts relating to the company, such as the latest financial position of the company, the latest auditor's report on the accounts of the company and the pendency of any investigation or proceedings against the company; (b) reduction of share capital of the company, if any, included in the compromise or arrangement; (c) any scheme of corporate debt restructuring consented to by not less than seventy-five per cent. of the secured creditors in value, including- (i) a creditor's responsibility statement i....
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....ment." 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 by revising the repayment schedule or extending a new refinancing loan." 25. Learned Counsel further submits that the Hon'ble Supreme Court in "Commissioner of Income Tax VII New Delhi vs. Punjab Stainless Steel Industries- (2014) 15 SCC 129" has laid down that when a term is not defined in statutes and circulars, its meaning can be taken as in prevalent in ordinary, common or commercial parlance amongst persons concerned with it. 26. When lenders restructure the debt i.e. permit the borrower to make the payment debt in different time schedule or different instalment as per any Scheme, the said will be debt restructuring. The statutory scheme required consent by not less than 75% of the secured creditors for such debt re....
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.... 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/ creditors of the CD. However, you have gone ahead with auction of assets of the CD. b) Even after submission of the Scheme on 04.10.2021, which is within the period allowed for submission of the Scheme, you deliberately took time to convene the meeting of the SCC and also delayed the process of verification of eligibility of the undersigned u/s 29A of the Code to justify your action of initiation of auction of assets of the CD in place of exploring revival of the CD. c) During the 2nd meeting of SCC held on 12.10.2021, the legal advisor apprised to you and the members of the SCC to take decision whether to consider the Scheme or pursue auction of assets of the CD scheduled to be held on 25.10.2021. Deliberately, you circulated provisional report on....
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....l 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 21st October, 2021, Respondent Nos.2 and 3 had no opportunity to approach the Financial Creditors for their consent, since the Liquidator has declared Respondent Nos.2 and 3 ineligible to submit the Scheme under Section 29A of the Code. The person submitting Scheme under Section 230, sub-section (1) of the Companies Act, 2013 is entitled to place the Scheme before Financial Creditors and make efforts to obtain their consent, which was denied to Respondent Nos.2. and 3, in the present case, due to the course adopted by the Liquidator as noted above. We thus are of the view that Respondent Nos.2 and 3 are entitled to an opportunity to place and explain their revised Scheme before Financial Creditors and it is for the Financial Creditors to consider the Scheme for purposes of giving ....
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.... 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 on 20.09.2021 another e-mail was sent by Smt. Meenu Tandon where she stated that she in her personal capacity holds 0.83% share and added to the individual shares inherited by her of 12.97%, her total holding excluding HUF adds to 13.70% which is higher than O.P. Goenka 13.48%. It is relevant to note that after rejection of the claim of Smt. Meenu Tandon, she filed an Application before the Adjudicating Authority and Adjudicating Authority has accepted the claim of Smt. Meenu Tandon. It is further relevant to notice that the claim of Smt. Meenu Tandon was filed as shareholder which was rejected by the Liquidator on the ground of delay vide e-mail dated 22.09.2021 against which order I.A 320 of 2021 was filed which has been decided by the Adjudicating Authority on 15.11.2021 condoning the delay in submission of the claim and Liquidator was directed to adjudicate the claim on merits. 33. We ....
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....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 Certificate, disburse the amount and handover the assets of the Corporate Debtor when Application I.A 314 of 2021 was pending as well as this Appeal pending before this Tribunal. The Hon'ble Supreme Court in "Shree Chamundi Mopeds Ltd. vs. Church or South India Trust Ass. CSI Cinodsecretariat, Madr- 1992 SCC (3) 1" has held that by passing of an interim order by a Court, the order impugned is not wiped off. It only becomes in-operative. The order impugned does not die and continue to live till it is set aside, following is the observation in the above context:- "While considering the effect of an interim order staying the operation of the order under challenge, a distinction has to be made between quashing of an order and stay of operation of an order Quashing of an order results in the restoration of the position as it stood on the date of the passing of the order which has been quashed. The stay....