By Pooja Punjabi Oberai | Pramod S. Prabhudesai
Chartered Accountants
5. Hindustan Oil Ltd. vs. Erstwhile Committee of Creditors of JEKPL Pvt.
Ltd.Company Appeal (AT) (Insolvency) No. 969 of
2020 Date of order: 17th November, 2020
Insolvency and Bankruptcy Code, 2016 – Implementation of a Resolution
Plan which was approved by Committee of Creditors could not be challenged by
the unsuccessful applicants
FACTS
H Co is an unsuccessful resolution applicant
whose Resolution Plan was rejected by the Committee of Creditors (‘CoC’). NCLT,
vide an order dated 9th September, 2020, directed
implementation of the approved Resolution Plan on or before the extended due
date, 30th September, 2020.
H Co urged that the Creditors of the Corporate Debtor, in connivance
with the Successful Resolution Applicant, accepted a re-negotiated fresh
Resolution Plan and the application of the CoC u/s 60(5) of the Insolvency and
Bankruptcy Code, 2016 (‘Code’) filed before the NCLT was not maintainable and
should not have been entertained by the NCLT as the CoC had become functus
officio after approval of the Resolution Plan.
It was further argued that NCLT had approved the Resolution Plan on 4th
February, 2020 and in terms of the approved Resolution Plan the successful
resolution applicant had to bring in Rs. 123 crores for resolution within 30
days of approval of the plan which expired on 5th March, 2020.
However, the successful resolution applicant did not implement the Resolution Plan
and the erstwhile CoC of the Corporate Debtor, in connivance with the
successful resolution applicant, accepted a fresh Resolution Plan to the
detriment of the legal rights of H Co whose Resolution Plan was rejected on the
ground that he could not provide for a lump sum time-bound payment within 30
days of the approval of its Resolution Plan.
HELD
NCLAT heard the appeal filed by H Co and observed that it had no locus
to question the implementation of the approved Resolution Plan of the
successful resolution applicant. Directions given in the context of the
application filed u/s 60(5) of the Code to the successful resolution applicant
follows as a necessary corollary to the dismissal of appeal filed against
approval of the Resolution Plan of the successful resolution applicant to
implement the approved Resolution Plan on or before the extended date of 30th
September, 2020.
It was observed that once H Co was out of the fray, it had neither locus
to call in question any action of any of the stakeholders qua
implementation of the approved Resolution Plan, nor could it claim any
prejudice on the pretext that any of the actions post approval of the
Resolution Plan of the successful resolution applicant in regard to its
implementation had affected its prospects of being a successful resolution
applicant.
H Co would not have any right to object if the terms of the approved
Resolution Plan of the successful resolution applicant have been varied or the
time extended to facilitate its implementation and the creditors have not
claimed any prejudice on that count. In fact, the CoC comprising of the
creditors as stakeholders did not object to the same. It was rather privy to it
on account of hardship due to the prevailing circumstances.
It was further observed that this was not a case of alleged material
irregularity in the Corporate Insolvency Resolution Process which is in the
final stages with the approved Resolution Plan being under implementation. The
outbreak of the Covid-19 pandemic slowed down the economic activity and
operations were adversely impacted. NCLAT held that in the given context some
necessary changes in the agreed terms and extension of time for implementation
would not be uncalled for.
NCLAT thus held that H Co had no locus to maintain that the
change in terms of the approved Resolution Plan in regard to extension of time
for induction of upfront amount as also implementation of the Resolution Plan
has jeopardised its legal rights qua consideration of its Resolution
Plan.
The appeal of H Co was accordingly dismissed.
6. Ratna Singh vs. Theme Export Pvt. Ltd.Company Appeal (AT) (Insolvency) No. 917 of
2020 Date of order: 18th November, 2020
Section 61 of Insolvency and Bankruptcy Code, 2016 – Appeal against a
liquidation order passed u/s 33 could only be made if there was a material
irregularity or fraud in relation to such an order – IBC is not meant for
initiating proceedings for prevention of oppression and mismanagement – It has
been armed with Chapters II and III for initiation of action against
wrongdoers, illegal transactions, etc.
FACTS
Mrs. R and Mr.
B (‘appellants’) were directors in T Co (‘Corporate Debtor’). Corporate
Insolvency Resolution Process was initiated against the Corporate Debtor by an
operation creditor Mr. R u/s 9 of the Insolvency and Bankruptcy Code, 2016
(‘the Code’). The National Company Law Tribunal (‘NCLT’) admitted the
application and appointed Mr. V as Insolvency Resolution Professional (‘IRP’).
The first meeting of the Committee of Creditors (‘CoC’) was held on 28th
September, 2019 and the second on 4th November, 2019 confirming IRP
as Resolution Professional (‘RP’) and also deciding to liquidate the Corporate
Debtor.
NCLT passed the
liquidation order primarily on the basis of the recommendation of the CoC which
had the strength of 98.5% voting shares. While passing the liquidation order,
NCLT took a conscious decision not to challenge the commercial wisdom of the
Financial Creditor.
Aggrieved by
the order, both ex-directors filed the present appeal for staying the
liquidation proceedings and quashing the impugned liquidation order. The
appellants submitted that Ms N, a director of the Corporate Debtor, siphoned
off money, evidence of some of which was submitted before the NCLAT.
It was further
submitted that the Corporate Debtor has availed financial credit facility from
Bank of Baroda to the tune of Rs. 25 crores, mortgaging its plant, machinery
and assets, including accessories, stock and fabric as primary security and the
factory at Okhla along with personal / corporate guarantees of the three
directors and the same was being renewed by the bank since 2005. The
performance of the Corporate Debtor started deteriorating from F.Y. 2015-16 –
from approximately Rs. 100 crores to about Rs. 30 crores in 2018-19 on account
of various frauds, leading to oppression and mismanagement by Mrs. N, director
of the Corporate Debtor, along with certain other related parties and employees.
Mr. Ravinder Rai, ex-accountant of the Corporate Debtor, even provided to the
IRP all the data of the illegal acts committed by Mrs. N on 18th
November 2019 prior to filing of liquidation proceedings by the IRP.
The appellants
had also written to Mrs. N demanding explanation for the theft and criminal
breach of trust amounting to oppression and mismanagement, apart from visiting
Bank of Baroda and informing the Chief Manager, Mr. Lalit Kumar Luthra, about
theft, etc., and demanded the stock statements and the fixed assets register
along with the list of machinery pledged to the Bank on 31st December,
2018.
The respondents
have not filed their counter objections. As per the written submission and also
the oral submission made by the respondent’s counsel, section 61(4) of the
I&B Code, 2016 clearly stated that an appeal against the liquidation order
could be challenged only on the ground of material irregularities or fraud
committed in relation to such liquidation order. It was also submitted that the
appellants did not challenge the liquidation order per se but their
grievance was against the act of oppression and mismanagement by the other
director of the Corporate Debtor.
It was further
submitted that the appellants failed to initiate the filing of a petition u/s
241-242 of the Companies Act, 2013 which deals with oppression and
mismanagement at the appropriate stage. Hence they cannot challenge the issue
of oppression and mismanagement u/s 61(4) of the Code and so the application
needs to be dismissed. The Liquidator further submitted that the documents are
being reviewed by the Forensic Auditor, M/s K.R.A. and Company, Chartered
Accountants, for certain transactions under sections 43, 45 and 66 of the Code
and an appropriate application shall be filed by the Liquidator based on its
findings. Further, the Liquidator argued that there were no chances of revival
of the Corporate Debtor and hence the CoC had passed a resolution liquidating
the Corporate Debtor. Thus, this application needs to be dismissed.
HELD
The NCLAT heard
the parties at length. It was observed that the Corporate Debtor had three
directors – the two appellants were directors and the other director was Ms N;
the shareholding of Ms N in the Corporate Debtor was 92% and of the appellants
8%.
NCLAT observed
that Chapter III of Part II of IBC, 2016 has a mechanism even during
liquidation process to initiate action for various wrongdoings from sections 43
to 51 and section 66, which are all related to undervalued transactions, avoidable
transactions, defrauding creditor, fraudulent trading or wrongful trading, etc.
It was observed that the Liquidator, who is also erstwhile IRP, was required to
take necessary action and the Bank of Baroda is to provide appropriate
assistance. Bank of Baroda was supposed to check the flow of inventory,
cash–to-cash cycle, etc., as they had lent Rs. 25 crores.
The NCLAT relied on judgments which had held that the commercial wisdom
of the CoC cannot be looked into by either the NCLT or the Appellate Authority.
It relied on section 61 of the Code and observed that an appeal against a
liquidation order passed u/s 33 may be filed on the grounds of material
irregularity or fraud committed in relation to the liquidation order. NCLAT did
not find any irregularity or fraud committed in relation to the impugned order.
It was observed that the Code is not meant for initiating proceedings for
prevention of oppression and mismanagement but is armed with provisions under
Part II Chapter – III for initiation of action against wrongdoers / illegal
transactions, etc. NCLAT upheld the order by passed by the NCLT and the appeal
was dismissed.
7. Jaideep Halwasiya vs. AA
Infraproperties (P.) Ltd. [2020] 121 taxmann.com 240 (NCLAT) Date of order: 4th September, 2020
At the Annual
General Meeting (AGM) and Extra Ordinary General Meeting (EOGM), new directors
were appointed and existing director ‘J’ was removed from directorship – In
view of the fact that neither any resolution nor any minutes of board meetings
were in existence, nor any notice of agenda was circulated in the prescribed
manner, the appointment of new directors and removal of ‘J’ as director was to
be stayed
FACTS
This appeal was
filed by ‘J’, a minority shareholder of ‘AA’ against the order dated 21st
February, 2020 passed by the National Company Law Tribunal, Kolkata Bench (‘the
Tribunal’) declining grant of interim relief requested by J. The Tribunal had
declined to record findings on the factual controversy as regards serving of
notices of AGM dated 24th September, 2019 and EOGM dated 4th
January, 2020. The Tribunal further observed that allowing interim relief as
claimed in the Company Petition would tantamount to deciding the main petition.
Admittedly,
there are two groups of shareholders in the company. The minority shareholders’
group comprises of J holding 12.5% shares, whereas the majority group holds
87.5% shares. Several allegations of oppression and mismanagement as regards
management and operations of the company were levelled by J which included not
being served notice of AGM dated 24th September, 2019 and notice of
EOGM dated 4th January, 2020 which was pending. It was during the
pendency of this petition that J sought interim relief alleging that the
respondents in collusion and connivance with each other illegally appointed new
directors in the AGM on 24th September, 2019 and ousted J from
directorship in the EOGM on 4th January, 2020. All these acts of
commission attributed to the respondents were alleged to have been done without
giving notice to J. Interim relief was sought on the strength of these
allegations claiming that the resolutions passed in such meetings were bad in
law and void ab initio. J further alleged that the acts of the
respondents, being oppressive in nature, are prejudicial to his interest in the
company.
The respondents
have refuted the allegations and pleaded that notice of the meetings in which
the resolutions inducting new directors in the company and removing J from the
post of director were passed, were given well in advance to J. It was further
pleaded that the majority shareholders were within their rights to pass such
resolutions appointing other persons as directors and removing the existing
directors, including J.
It was further
submitted that the respondents were illegally trying to usurp control over the
company by forcing the ouster of J from the Board and appointing new directors.
It was submitted that the Respondents adopted a modus operandi creating
an impression that new directors were appointed at the meeting held on 24th
September, 2019 and subsequent to this alleged AGM, an EOGM was held on 4th
January, 2020 wherein J was removed. It was pointed out that there was no
resolution nor any minutes of the alleged Board Meeting dated 22nd June,
2019 to show that the two directors of the company had decided to hold the AGM
on 24th September, 2019. No minutes as required u/s 118 of the Act
had been produced by the company to support its plea. It was further submitted
that as regards the alleged agenda and notice dated 6th June, 2019,
no notice or agenda was ever circulated. The documents relied upon by the
respondents in this regard were fabricated as they did not bear the necessary
signatures and were not on the letterhead of the company. The notice of AGM was
never served on J or any other shareholder. Even service was not effected
through the prevalent mode of service. The annual returns were filed without
holding an AGM and on the date of the alleged meeting one of the shareholders
(a director) was not even in India.
It was
submitted that since J did not attend any meeting purportedly held on 24th
September, 2019 the minimum required quorum for the General Meeting as
per section 103(1)(b) of the Act was not present. Such a meeting would therefore
have no meaning and cannot be said to exist in law. Thus, it was contended that
the AGM of 24th September, 2019 is non est and the
resolutions passed on that date deserved to be stayed. Further, the purported
resolution of 4th January, 2020 for removal of J as Director was
entirely illegal and void ab initio. There was no evidence to show that
notice of the Board Meeting to be convened on 26th November, 2019
was served on J. The genuineness of the alleged notice for the EOGM of 12th
December, 2019 was disputed. The variation in addresses was also
highlighted. Thus, the very foundation of removal of J from the Board was
nothing but fraudulent and was sought to be supported by fabricated documents.
HELD
The Appellate
Tribunal observed / noted as under:
J is admittedly a minority shareholder whilst the respondents and
associates are the majority shareholders. With allegations of the respondents
making all efforts to usurp control over the company through all means, fair or
foul, emanating from J, it is demonstrated by J that no resolution or any
minutes of the Board Meeting of 22nd June, 2019, stated to be the
edifice of the alleged AGM, was in existence to even suggest that the two
directors decided to hold the AGM on 24th September, 2019. It was
contended on behalf of J that adherence to the statutory requirement u/s 118 of
the Companies Act has not been established by respondents which justifies
drawing of an inference that neither any such Board Meeting was conducted nor
any minutes of such Board Meeting recorded. It was also pointed out that no
notice or agenda was circulated in the prescribed manner and bearing the
signatures of J. As regards the notice said to have been issued on 5th
August, 2019, similar contentions have been raised, it being further pointed
out that the prevalent modes of service have not been resorted to.
It has been
pointed out that although Form No. MGT 7 was filed even without holding the
AGM, the Annual Report falsely declared that the AGM had been attended by both
J as well as the directors. It has been pointed out that J never attended any
such meeting and one of the other directors was not in India on that date. It
was also pointed out that after the respondents realised that the fraud played
by them in this regard had been discovered, one of the respondents cooked up
another false story by setting up the plea that someone had attended the
meeting on his behalf and a clerical error had been made in the Annual Report.
No authorisation in this regard has been produced by the respondents to
demonstrate that someone else had attended as a representative in the alleged
AGM. It was submitted on behalf of J that since J did not attend any purported
meeting on 24th September, 2019 the minimum required quorum
of the General Meeting not being present, any resolutions said to have been
passed on such date were required to be
stayed. On the strength of these relevant facts, it was contended on behalf of
J that the ouster of J as director was entirely illegal.
Since the foundation
was bad, it was contended that the entire superstructure was bound to collapse.
J has demonstrated all these circumstances to show that he has raised a fair
question which requires a probe in the Company Petition. The arguments raised
on this score cannot be dismissed off hand. Given the status of J, it can be
safely stated that with the existence of a prima facie case in his
favour, the balance of convenience lies to the side of J who is faced with the
prospect of his interests and legal rights being seriously jeopardised in the
wake of the Tribunal order.
For the
foregoing reasons, the Appellate Tribunal opined that the order of the Tribunal
suffered from grave legal infirmity besides factual frailty. Therefore, it cannot
be supported. The appeal was allowed and the order of the Tribunal was set
aside. The appointment of new directors and removal of J as director of the
company was stayed till the decision on the Company Petition.
8. Jaishree Dealcomm (P) Ltd. vs. Registrar of Companies [2020] 119 taxmann.com 418 (NCLAT) Date of order: 29th November, 2019
Section 252
read with sections 164 and 248 of the Companies Act, 2013 – Name of the company
was struck off from the register of companies – Directors filed an application
for restoration of name which was dismissed on the ground that they being
disqualified could not maintain an appeal – But from share certificates and
annual returns of the company it was found that said directors were also
shareholders and thereby entitled to file an appeal as per section 252(3) –
Further, the company had not filed annual returns since F.Y. 2013-14 onwards
though it was regularly carrying on its business as evidenced by auditors’
reports and financial statements for years ended 31st March, 2014 to
31st March, 2017 – It was held that the order striking off the name
of the company from the register of companies was prejudicial to the
shareholders and was to be set aside and the name restored
FACTS
J Pvt. Ltd. is
a company incorporated under the Companies Act, 1956 and having its registered
office in Kolkata. It was served notice u/s 248(1)(c) of the Companies Act,
2013. Thereafter, a public notice was issued and the company’s name struck off
from the register of companies.
This order was
challenged before the NCLT, Kolkata. However, NCLT dismissed the appeal on the
ground of maintainability that u/s 252(3) of the Companies Act, 2013 a company
or any member or creditor or workman can file application for restoration of
the name of the company. NCLT had, while dismissing the appeal, also observed
that as per section 164(2)(a) of the Companies Act, 2013, directors being
disqualified cannot maintain the appeal. Being aggrieved, the directors
preferred the present appeal.
It was submitted
that the directors who had preferred this appeal were also shareholders of the
company. Further, J was regularly carrying on business as stated in the main
object clause of the Memorandum of Association of the company and was regularly
filing income-tax returns with the Income-tax Department. However, J had
inadvertently failed to file its audited financial statements and annual
returns from financial year 2013-14 onwards which were annexed with the Memo of
Appeal. It was apparent from the audited balance sheets that J had been
carrying on business.
The ROC, West
Bengal, submitted that J had been grossly negligent in not filing the annual
returns and financial statements since F.Y. 2013-14, thus the order of the NCLT
/ ROC be upheld.
HELD
The Appellate
Tribunal observed / noted as under:
The Memo of
Appeal was filed by shareholders of the company and it was considered on merit.
Clearly, the company had not filed annual returns since F.Y. 2013-2014.
However, it was regularly carrying on its business and filed the reports of the
auditors and financial statements for the years ended 31st March,
2014 to 31st March, 2017. The audited financials were perused and it
was apparent that J has been carrying on its business continuously. Therefore,
the order of striking off the name of the company from the register of
companies is prejudicial to the shareholders of the company. The order is
liable to be set aside and is hereby set aside.
It was further ordered that within 30 days of restoration of the company’s
name in the register maintained by the Registrar of Companies, the company will
file all its annual returns and balance sheets due for the period ending 31st
March, 2014 to date. The company will also pay requisite charges / fee as well
as late fee / charges as applicable.
In spite of the
present orders, the ROC will be free to take any other steps, punitive or
otherwise, under the Companies Act, 2013 for non-filing / late filing of
statutory returns / documents against the company and directors.
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