By Pooja J. Punjabi
Chartered Accountant
9. Lalit Mishra vs. Sharon Bio Medicine Limited
Company Appeal (AT) (Insolvency) No. 164 of 2018 Date of Order: 19th
December, 2018
Insolvency and Bankruptcy Code, 2016 –
Shareholders and promoters are not creditors – Right available to surety (who are
also the promoters and shareholders) under contract law will not be applicable
in case of an approved resolution plan
FACTS
National Company Law Tribunal (“NCLT”) passed an order whereby a
resolution plan was approved in respect of S Co. L was a promoter of S Co.
Predominantly, the grounds of appeal are that L and others although are
promoters and shareholders, no amount has been provided for them; and some of
the promoters being personal guarantors are discriminated against.
L has also submitted that the security interest which include the
personal guarantees of L have been reduced to ‘nil’ and thereby the ‘Resolution
Plan’ have been submitted against the provisions of sections 133 and 140 of the
‘Indian Contract Act’.
HELD
NCLAT examined the various clauses of the resolution plan approved by
the NCLT. It was observed that restructuring of the financial debt as part of
the ‘Resolution Plan’ approved by the NCLT under the Code did not envisage
complete discharge of the liability of personal guarantors of the S Co. The
plan mentioned that all securities/ collaterals/ margin money/ fixed deposit
with lien provided by S Co shall be deemed to be released immediately on
Effective Date. It is subsequently mentioned that the personal guarantee provided
by the existing promoters of S Co shall not result in any liability towards S
Co or the ‘Resolution Applicants’.
This ‘treatment of security’ and with regard to personal guarantee
provided by the existing promoters of S Co is alleged to be in violation of
section 140 and section 133 of the ‘Indian Contract Act’.
However, it was held that intention of the law was maximisation of the
value of the assets of the ‘Corporate Debtor’, then to balance all the
creditors and make availability of credit and for promotion of entrepreneurship
of the ‘Corporate Debtor’. The Code prohibits the promoters from gaining,
directly or indirectly, control of the ‘Corporate Debtor’, or benefiting from
the ‘Corporate Insolvency Resolution Process’ or its outcome. The Code seeks to
protect creditors of the ‘Corporate Debtor’ by preventing promoters from
rewarding themselves at the expense of creditors and undermining the insolvency
processes.
The NCLAT held that the shareholders and promoters are not creditors and
thereby the ‘Resolution Plan’ cannot balance the maximisation of the value of
the assets of the ‘Corporate Debtor’ at par with the creditors. They were also
ineligible to submit the ‘Resolution Plan’ to again control or takeover the
management of the ‘Corporate Debtor’. Further it was held that there was no
discrimination if no amount is given to the promoters/shareholders and the
other equity shareholders who are not the promoters have been separately
treated by providing certain amount in their favour. The appeal was accordingly
dismissed.
10.
KKR Jupiter Investors (P.) Ltd. vs. JBF Petrochemicals Ltd. [2018]
100 taxmann.com 341 (NCLT-Ahd.) Date of Order: 19th November, 2018
Section 60(5)(c) r.w.s 7 of Insolvency and
Bankruptcy Code, 2016 -_ Proceedings u/s. 7 can only be initiated by or against
the corporate debtor – No other person (including a financial investor,
promoter or shareholder) can intervene in the proceedings so initiated
FACTS
K Co, is a financial investor of J Co. In April 2018 K Co came to know
that corporate insolvency resolution process u/s. 7 of the Insolvency
Bankruptcy Code, 2016 has been initiated against J Co by one of its financial
creditors. K Co as a financial investor submitted that it proposed to implement
a comprehensive solution to the problems faced by all the stakeholders of J Co
within a reasonable time period and sought the co-operation of the financial
creditor. This was mainly based on the contention that corporate insolvency
resolution process would not serve any beneficial purpose to the stakeholders
including financial creditor and the proposed financing would resolve the
issues whereby the lender would receive payment of outstanding principal amount
under the facility arrangement and K Co’s interest would also be preserved. The
applicant thus filed intervention application for affording an opportunity to
it to raise all the issues for the effective adjudication in the matter.
HELD
National Company Law Tribunal (“NCLT”) examined the provisions of
section 60(5) of the IBC which deal with adjudicating authority for corporate
persons. It observed that an application/proceeding u/s. 60(5) of the IBC could
be filed by or against the corporate debtor. This was unlike the K Co’s case,
where, the intervention application was filed against the financial creditor.
NCLT further observed that section 60(5)(c) had no applicability at the
stage of adjudication on admissibility of application filed u/s. 7 of IBC. This
was because section 60(5)(c) dealt with questions of priorities or any question
of law or facts “arising out of or in relation to the insolvency resolution or
liquidation proceedings of the corporate debtor” or corporate person. NCLT,
thus, concluded that the intervener cannot resort to section 60(5)(c) to invoke
jurisdiction of the Tribunal to entertain the intervention application in a
case where the proceedings are initiated by the financial creditor u/s. 7 of
the IBC which is under way and the insolvency resolution process against the
corporate debtor has not been initiated.
NCLT relied on the decision of the NCLAT in Axis Bank vs. Lotus Three
[2018] 97 taxmann.com 96 wherein it was held that, third party i.e. an
entity other than the financial creditor/corporate debtor is not offered the
right to be heard and/or to intervene in a proceeding initiated u/s. 7. NCLT
thus held that adjudicating authority was only required to satisfy that the
default had occurred and the corporate debtor was entitled to point out that
the default had not occurred, i.e. the debt was not due. No other person had
the right to be heard at the stage of admission of application u/s. 7 and 9
including the shareholder or the personal guarantor. The Tribunal also relied
on the decision of the Supreme Court in the case of Innoventive Industries
Ltd. vs. ICICI Bank Ltd. [2017] 84 taxmann.com 320 (SC) to draw support for
this position held by the Tribunal. NCLT, thus, rejected the application filed
by K Co.
11. Vestal Educational
Services (P.) Ltd. v. Lanka Venkata Naga Muralidhar [2018] 100 taxmann.com 286
(NCL-AT) Date of Order: 16th November, 2018
Section 62 of Companies Act, 2013 – Money was
given by ex-director to Company for re-payment of loans taken by the company –
Company alleged that amount was advanced against equity shares and not loan as
was claimed by the ex-director – Company was required to establish that a valid
offer of shares was made to and accepted by the ex-director and that procedure
laid down u/s. 62 was complied with – Inability to prove the same rendered the
allotment null and void.
FACTS
L is a shareholder of V Co and acted as a director of the same from
December 2006 to October 2011. V Co had borrowed loan from SBI in 2009 against
which properties of V Co were mortgaged and L also gave a personal guarantee.
The term loan became NPA in 2013 (i.e. after L ceased to be a director
in October 2011). There was a one-time settlement agreed by V Co. Since the
company could not meet its liability as per the one-time settlement scheme
entered into with the Bank, it approached L to lend Rs. 1.54 crore. L deposited
the said sum in the account of V Co.
L claimed that he sent reminders to the company for repayment of the
amount and also sent legal notices asking for payment of amounts advanced by
him to the company. Meanwhile, V Co sent a courier to the original petitioner
showing the latest shareholding and on verification, the original petitioner
found that amount lent by him had been converted into equity without his
knowledge, intimation or authorisation and that the action on the part of company to convert the amount
into equity was to avoid the payment of money to him and clearly an
afterthought.
The NCLT observed that there was no evidence as regards issue of notice
offering shares and ultimately set aside the allotment made by the company and
directed that the amount be paid to L.
V Co filed the present appeal pleading that amounts were advanced by L
as a consideration for issue of shares and not as a loan as was held by NCLT.
HELD
NCLAT observed that having regard to the opposing nature of claims,
burden was on V Co to show that when the payments were made by L, he had agreed
that against the said amount, shares be issued to him. V Co was also required
to establish that procedures laid down u/s. 62 of Companies Act, 2013 were
complied with.
The NCLAT observed that there was no match between the amounts advanced
by L and shares alleged to be allotted by V Co in light of ledger maintained by
V Co.
NCLAT held that V Co was unable to establish at any point of time that L
had in fact consented to the issue of equity shares against money advanced by
him. Further, additional documents that V Co tried to submit in order to
further its claim were never filed before NCLT and there was a concern on the
genuineness of the documents so tendered for filing. NCLAT further held that
had the documents been considered, the conclusion would still be the same as
NCLT. V Co was unable to prove that shares were offered to L or that L had in
fact accepted the offer alleged to have been made.
The appeal filed by V Co was accordingly aside and a cost of Rs.
1,50,000 was imposed upon V Co.
