10 Akhil R. Kothakota and Anr. vs. Tierra Farm Assets Co. (P) Ltd. [2021] 162 CLA 249 (NCLAT) Date of order: 9th November, 2021
Section 71(10) of the Companies Act, 2013 specifically empowers the Tribunal to direct, by order, a company to redeem the debentures forthwith on payment of principal and interest due thereon where a company has failed to pay interest on debentures when it was due
FACTS
* M/s TFA issued secured ‘non-convertible debentures’ on 17th December, 2015 and a debenture trust deed was executed between it and M/s VITCL, which was the debenture trustee to issue debentures against certain properties listed in Schedule II of the deed. M/s TFA was supposed to make interest payments to the debenture holders in March 2018, June 2018, September 2018, and December 2018. However, it failed and neglected to make such payments. Thereafter, the debenture holders kept diligently following up with M/s TFA and the various other entities involved regarding interest payments which had been defaulted on.
* The debenture holders had also been consistent in their demand for redemption of the debentures as stipulated under the terms of the trust deed and preferred to file a petition u/s 71(10) of the Companies Act, 2013 before the NCLT, Bengaluru Bench which sought the following directions:
(a) M/s TFA to make repayment of the aforesaid debenture(s) along with interest due thereon in accordance with the terms and conditions w.r.t. debenture amounts, which included the default of interest payable as well as the prepayment penalty which aggregated to Rs. 74,99,280 as on the date of filing the application.
(b) M/s TFA to be injuncted from dealing with the mortgaged properties as specified in the debenture trust deed dated 17th December, 2015 and a direction issued to the debenture trustee to enter into / take possession of the mortgaged properties as specified in the debenture trust deed, etc.
After hearing the case, NCLT passed an order dated 17th December, 2019 in exercise of the powers conferred on it u/s 71(10) of the Companies Act, 2013 read with rule 73 of the NCLT Rules, 2016. NCLT in its order disposed of the petition by granting six months’ time, provisionally from the date of the order, so as to explore all possibilities of settlement of claims of the debenture holders along with other similarly situated claimants.
However, the debenture holders being aggrieved by the NCLT order preferred an appeal before the National Company Law Appellate Tribunal (NCLAT) on the following grounds:
(a) NCLT did not specifically address ‘the prayer for repayment’ but rather gave a direction to explore all possibilities of settlement of claims of the petitioners and granted six months’ time, which is ultra vires of sections 71(8) and 71(10) of the Companies Act, 2013.
(b) NCLT had not focused on the reply submitted by M/s TFA which did show that there was a clear admission of default of payment of interest on the ‘non-convertible debentures’ and M/s TFA proposed to settle the dues and that the matter was under due process and averred that there was an arbitration proposal pending between the parties. However, the material on record did not give evidence of any such initiation of ‘arbitration proceedings’.
HELD
NCLAT observed that the NCLT Bengaluru Bench had taken into consideration the ‘financial status of the company’, the interest of all stake holders and had given a direction for settlement. However, the fact remained that M/s TFA did not make any effort to settle the matter nor was there any representation on its behalf before the NCLAT.
It further observed that section 71(10) of the Companies Act, 2013 provides a clear mechanism for issue and repayment of debentures, including the enforcement of repayment obligations and section 71(10) of the Companies Act, 2013 does not empower the Tribunal to ascertain the financial condition of the defaulting party or grant any other relief than the relief provided for under the said section.
NCLAT also noted that there was no arbitration clause in the debenture trust deed and ‘no consent’ was given by the debenture holders for initiation of any ‘arbitration proceedings’ till date.
NCLAT disposed of the appeal with a specific direction to M/s TFA to repay the amounts ‘due and payable’ to the debenture holders within a period of two months from the date of the order, failing which it was open to the debenture holders to take steps as deemed fit in accordance with the law.
11 M/s Mohindera Chemicals Private Limited vs. Registrar of Companies, NCT of Delhi & Haryana & Ors. National Company Law Appellate Tribunal, New Delhi Company Appeal (AT) No. 9 of 2020 Date of order: 9th September, 2020
In a case where company was functional, and the same can be seen from the content of the balance sheets, the name of the company needs to be restored in the Register of Companies
FACTS
M/s MCPL submitted that merely because the balance sheet remained to be filed the Registrar of Companies (RoC) presumed that it was not functional and its name was struck off with effect from 8th August, 2018.
It further submitted that if the reply of the Income-tax Department, Diary No. 19303 is pursued, the Department has also stated that the assessment for the year ended as on 31st March, 2012 was completed on 29th December, 2018 and there was an outstanding demand of Rs. 7,79,74,290 that was still pending for recovery.
If the name was not restored, M/s MCPL stated, it would seriously suffer as there were huge outstanding dues which the company had to receive; the debtors were ready to pay but were unable to do so because the name was struck off.
M/s MCPL was ready to go in for settlement in the case of the IT dues also and for all such reasons it was necessary to restore its name in the Register of Companies as maintained by the RoC.
But the RoC submitted that there was a lapse on the part of M/s MCPL and that the RoC had followed due procedure and the name was struck off as M/s MCPL did not respond to the Public Notice.
HELD
NCLAT held that M/s MCPL had been functional as could be seen from the content of the submitted balance sheets and directed the RoC to restore its name, subject to the conditions that M/s MCPL will pay the costs of Rs. 1,00,000 to the RoC and the company will file all the outstanding documents / balance sheets and returns within two months along with penalties and late payment charges, etc., as may be due and payable under Law.
12 In the High Court of Delhi at New Delhi W.P.(C) 3261/2021, CM Appls. 32220/2021, 41811/2021, 43360/2021, 43380/2021
Nitin Jain, Liquidator PSL Limited vs. Enforcement Directorate, through Raju Prasad Mahawar, Assistant Director, PMLA
FACTS OF THE CASE
Liquidation of the corporate debtor (CD) was commenced by the adjudicating authority vide order dated 11th September, 2020, with Nitin Jain being appointed as the Liquidator. On 15th January, 2021, the Liquidator received summons from the Enforcement Directorate (ED). The petitioner moved CM Application No. 32220/2021 before this Court disclosing that the sale of the CD as a going concern was conducted on 9th April, 2021, a bid of Rs. 425.50 crores was received from M/s Lucky Holdings Private Limited and a Letter of Intent came to be issued in favour of M/s Lucky Holdings Private Limited on 19th April, 2021. The sale as conducted by the Liquidator was approved by the adjudicating authority in terms of its order of 8th September, 2021. It has accordingly been prayed that the Liquidator be permitted to distribute the proceeds as received out of the liquidation sale and at present placed in an escrow in terms of the order of this Court of 17th March, 2021.
QUESTIONS OF LAW
Whether the authorities under the Prevention of Money Laundering Act, 2002, would retain the jurisdiction or authority to proceed against the properties of a corporate debtor once a liquidation measure has come to be approved in accordance with the provisions made in the Insolvency and Bankruptcy Code, 2016?
Whether there is in fact an element of irreconcilability and incompatibility in the operation of the two statutes which cannot be harmonised?
Whether the liquidation process is liable to proceed further during the pendency of proceedings under the PMLA and notwithstanding the issuance of an order of attachment?
RULING IN CASE
Irreconcilability and incompatibility in the operation of the two statutes
Viewed in that backdrop, it is evident that the two statutes essentially operate over distinct subjects and subserve separate legislative aims and policies. While the authorities under the IBC are concerned with timely resolution of the debts of a corporate debtor, those under the PMLA are concerned with the criminality attached to the offence of money laundering and to move towards confiscation of properties that may be acquired by commission of offences specified therein. The authorities under the aforementioned two statutes consequently must be accorded adequate and sufficient leeway to discharge their obligations and duties within the demarcated spheres of the two statutes.
Liquidation process is liable to proceed further during the pendency of proceedings under the PMLA
Section 32A legislatively places vital import upon the decision of the adjudicating authority when it approves the measure to be implemented in order to take the process of liquidation or resolution to its culmination. It is this momentous point in the statutory process that must be recognised as the defining moment for the bar created by section 32A coming into effect. If it were held to be otherwise, it would place the entire process of resolution and liquidation in jeopardy. Holding to the contrary would result in a right being recognised as inhering in the respondent to move against the properties of the CD even after their sale or transfer has been approved by the adjudicating authority. This would clearly militate against the very purpose and intent of section 32A.
Section 32A in unambiguous terms specifies the approval of the resolution plan in accordance with the procedure laid down in Chapter II as the seminal event for the bar created therein coming into effect. Drawing sustenance from the same, this Court comes to the conclusion that the approval of the measure to be implemented in the liquidation process by the adjudicating authority must be held to constitute the trigger event for the statutory bar enshrined in section 32A coming into effect. It must consequently be held that the power to attach as conferred by section 5 of the PMLA would cease to be exercisable once any one of the measures specified in Regulation 32 of the Liquidation Regulations, 2016 comes to be adopted and approved by the adjudicating authority.
PMLA jurisdiction or authority to proceed against the properties of a corporate debtor
The expression, sale of liquidation assets, must be construed accordingly. The power otherwise vested in the respondent under the PMLA to provisionally attach or move against the properties of the CD would stand foreclosed once the adjudicating authority comes to approve the mode selected in the course of liquidation. To this extent and upon the adjudicating authority approving the particular measure to be implemented, the PMLA must yield.
HELD
In any event, this Court is of the firm view that the issue of reconciliation between the IBC and the PMLA insofar as the present petition is concerned needs to be answered solely on the anvil of section 32A. Once the Legislature has chosen to step in and introduce a specific provision for cessation of liabilities and prosecution, it is that alone which must govern, resolve and determine the extent to which powers under the PMLA can be permitted in law to be exercised while a resolution or liquidation process is on-going.
From the date when the adjudicating authority came to approve the sale of the CD as a going concern, the cessation as contemplated u/s 32A did and would be deemed to have come into effect.
