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March 2018

Corporate Law Corner

By Pooja J. Punjabi
Chartered Accountant
Reading Time 13 mins

16. Vivek Vijay Gupta vs. Steel Konnect (India) (P.) Ltd.

[2018] 90 taxmann.com 78 (NCLT – Ahd.)

Date of Order: 15th January, 2018

 

Section 31 read with section 30 and 25 of the Insolvency and Bankruptcy Code, 2016 – NCLT does not have any power or authority to interfere with the decision of committee of creditors in rejecting a resolution plan submitted for its consideration. 

 

FACTS

Financial Creditor instituted Insolvency proceedings against S Co u/s. 7 of the Insolvency and Bankruptcy Code, 2016 (“the Code”). The appeals filed by SCo were dismissed by the National Company Law Tribunal (“NCLT”) and subsequently by the Supreme Court. Resolution Professional (“IRP”) was appointed and a valuation report was finalised by him on 10.11.2017 which pegged the value of S Co at Rs. 39 crore. Promoters of S Co submitted a resolution plan for Rs. 85 crore on 25.11.2017. In view of the Ordinance passed by the Central Government amending section 29 of the Code, the resolution plan submitted by the Promoters was rejected as they were not eligible to submit a resolution plan and the Committee of Creditors (“COC”) did not accept the same. Pursuant to an advertisement filed by the IRP an Asset Reconstruction Company (“ARC”) filed a resolution plan for Rs. 93.42 crore which was also rejected by the IRP. ARC filed a modified plan which was placed before the COC and the same was also rejected by the COC.

 

Present application was filed by the Promoter / Director of S Co alleging that the plan submitted by the ARC was in compliance with the provisions of the Code and that COC had simply rejected the plan with a remark that the same was not in compliance with the Code without assigning any reasons even though the plan was in the interest of S Co and its stakeholders. It was prayed that NCLT should intervene and overturn the decision of COC which rejected the resolution plan.   

 

HELD

NCLT observed that it has two fold powers granted to it u/s. 31 of the Code, namely:

 

(i)  accept the plan which is approved by the COC; or

(ii) reject the plan which though approved by the COC does not meet the requirements of the Code.

 

In case if no resolution plan is placed before NCLT before the expiry of the Insolvency Resolution Process period or the extended period, then NCLT is bound to pass an order for liquidation. Section 33(1)(b) of the Code gives authority to the NCLT to order liquidation in case it rejects the resolution plan u/s. 31(2) for non-compliance of the requirements specified therein. Therefore, even at the stage of ordering liquidation, NCLT has no authority to consider a resolution plan that was rejected by the COC.

 

It was observed that NCLT does not have any power to sit over the judgment on resolution of COC in the rejecting the resolution plan. The Tribunal held that it had no power to or authority to interfere with the decision of the COC in rejecting the resolution plan.

 

When the information is there before the COC regarding the non-compliance of the requirements of the Code and Regulations, COC is perfectly justified in rejecting the resolution plan. It was held that there were no facts and circumstances that warrant interference by NCLT in the rejection of the resolution plan.

 

The IRP, in carrying out its duties, submitted the plan which it received from the ARC before the COC. It also brought out the fact that the same was not in accordance with the provisions contained in the Code. The NCLT further observed that in light of the fact pattern of this case, there was no lapse on part of the IRP in carrying out its duties enumerated under the Code.

 

There was a contention raised that the Promoters and directors of S Co (who filed the application) are persons aggrieved or not. Since the resolution plan was in the interest of S Co and its stakeholders, it could be said that its promoters and directors were also aggrieved persons. However, NCLT observed that although promoters and directors were invited to be a part of the meeting of COC they did not choose to attend the same. Without demonstrating how the plan was beneficial to S Co and its stakeholders it could not be held that the Promoters / directors were aggrieved persons.

 

The NCLT, thus rejected the application filed before it. 

 

17. Bengal Chemists and Druggists Association vs. Kalyan Chowdhury

[2018] 90 taxmann.com 112 (SC)  

Date of Order: 02nd  February, 2018

 

Section 421 read with section 433 of the Companies Act, 2013 – Proviso to section 421(3) is peremptory in nature – Any appeal filed after the period specified therein becomes time barred – Delay cannot then be condoned by resorting to the provisions of Limitation Act, 1963.

 

FACTS

B Co being aggrieved by an order passed by National Company Law Tribunal filed an appeal before the National Company Law Appellate Tribunal (“NCLAT”). NCLAT dismissed the appeal on the grounds that the same was filed 9 days after the expiry of period of limitation of 45 days as well as further period of another 45 days. NCLAT held that the appeals were not maintainable in lines with section 421(3) of the Companies Act, 2013 (“the Act”).

 

B Co filed an application before the Supreme Court against the order of NCLAT dismissing the appeal.  

 

It was argued before the Supreme Court that section 421(3) of the Act does not contain the language of section 34(3) proviso of the Arbitration Act, 1996 which contains the words “but not thereafter”. It was further argued that in terms of section 433 of the Act, provisions of the Limitation Act, 1963 shall, as far as may be, apply to Appeals before the Appellate Tribunal. Section 5 would therefore be applicable to condone the delay beyond the period of 90 days.

 

HELD

The Supreme Court considered the provisions of sections 421 and 433 of the Act. It observed that a cursory reading of section 421(3) made it clear that the proviso provides a period of limitation different from that provided in the Limitation Act, and also provides a further period not exceeding 45 days only if it is satisfied that the appellant was prevented by sufficient cause from filing the appeal within that period. 

 

It was observed that section 433 cannot apply because the provisions of the Limitation Act only apply “as far as may be”. There is a special provision contained in proviso to section 421(3) and as a corollary, section 5 of the Limitation Act cannot apply.

 

The Supreme Court held that 45 days is the period of limitation, and a further period not exceeding 45 days is provided only if sufficient cause is made out for filing the appeal within the extended period. If the Court was to accept the argument put forth by the Applicant, it would mean that notwithstanding that the further period of 45 days had elapsed, the NCLAT may, if the facts so warrant, condone the delay. This would be to render otiose the second time limit of 45 days, which is peremptory in nature.

 

In coming to this conclusion, the Supreme Court relied on its own decision in the case of Chhattisgarh SEB vs. Central Electricity Regulatory Commission, 2010 (5) SCC 23. The Supreme Court also distinguished the decisions which were relied upon by the counsel for B Co.

 

The appeal filed by B Co was thus dismissed by the Supreme Court.

 

18. Prem Prakash Sethi vs. Union of India

[2018] 89 taxmann.com 234 (Delhi)             

Date of Order: 10th January, 2018

 

Section 252 of Companies Act, 2013 read with Condonation of Delays Scheme, 2018 – Name of company was struck-off from the Register of Companies owing to non-compliances – Petition filed u/s. 252 was still pending before the NCLT – Directors of the company could avail the benefit of Condonation of Delays Scheme, 2018

 

FACTS

S Co was in an active business and it defaulted in making certain statutory compliances under Companies Act, 2013 (“the Act”) and requisite returns were not filed by them. Registrar of Companies (“ROC”) believed that directors of S Co were disqualified u/s. 164(2)(a) of the Act and that S Co was disqualified u/s. 248(1) of the Act.

 

ROC therefore, issued a show cause notice in March 2017 requiring S Co to show cause as to why it was not liable to be removed from the Register of Companies. S Co failed to respond to this notice, resulting in passing of an order of removal of the company from the Register of Companies. S Co then invoked remedy available u/s. 252(3) of the Act by filing a petition with the National Company Law Tribunal (“NCLT”) praying for revival of  the company.

 

Director of S Co filed the present writ petition before the High Court expressing that it was desirous of availing the Condonation of Delays Scheme, 2018 (“CODS-2018”) but was unable to do so because name of S Co had been struck off from the Register of Companies. It was prayed before the High Court that they be permitted to avail the benefit of CODS-2018, subject to the outcome of the proceedings initiated u/s. 252 of the Act. 

 

S Co also conceded that non-filing of returns was a bonafide mistake on part of the company and it was stated that it was ready to submit all the relevant documents which were required by the ROC.

 

HELD

The High Court observed that S Co deserves to be fairly given an opportunity to avail the benefit of CODS-2018 given that order striking off its name from the Register of Companies was itself pending consideration before  the NCLT.

 

The High Court therefore, directed S Co to file all the requisite returns in relation to the company and submit necessary application along with requisite charges to the ROC in order to enable it to avail the benefits provided under the CODS-2018.

 

The High Court also directed NCLT to dispose the application expeditiously given that benefit under CODS-2018 is available only up to 31.03.2018. In the event the NCLT is unable to dispose of the appeal within the time as requested for the reasons that are not attributable to S Co, it was directed that the ROC shall ensure that the Scheme under CODS-2018 is extended in respect of the directors of S Co.

 

The High Court held that directors of S Co would not be deprived of the opportunity to avail the CODS-2018 only on account of pendency of the petition before NCLT. 

 

It was also clarified that if directors of S Co did not avail of the CODS-2018 or file necessary documents then, in addition to other consequences, they would also be liable for prosecution for Contempt of Court.

 

Petition filed by S Co was thus allowed.

 

19. Real time Interactive Media Pvt. Ltd. vs. Metro Mumbai Infradeveloper Pvt. Ltd.

[2018] 90 taxmann.com 89 (Bombay)

Date of Order: 12th January, 2018

 

Section 271 read with section 248 of Companies Act, 2013 – High Court has the power to order winding up of company although its name has been struck off from the Register of Companies.

 

FACTS

R Co was engaged in the business of publishing and managing advertisements on BEST TV LED screens in the BEST buses (BEST TV) running in Mumbai. R Co was the sole agent of BEST in respect of airing such advertisements on BEST TV. M Co engaged R Co for displaying advertisements on BEST TV in 1300 Non AC buses and 250 AC buses for a period of 3 months from 07.10.2011 till 07.01.2012 for a consideration of Rs. 15 lakhs plus taxes. In terms of the agreement, R Co aired those advertisements and raised invoices of Rs. 5,16,665 in respect of each of the months for which the service was provided. Invoices raised also mentioned that interest would be charged if the same were not paid on or before the due date.

 

M Co paid in installments a total amount of Rs. 5 lakhs and as on 16th April, 2012 after adjusting this Rs. 5 lakhs from the total invoice of Rs. 15,49,995 there was a balance outstanding of Rs. 10,49,995. As no payments came forth, R Co issued a statutory notice dated 27.05.2014 to M Co. M Co did not file any reply to the statutory notice issued to it.

 

R Co urged before the Court that the registered address shown in the Company Master Data is the same address to which notice under Rule 28 of the Companies Court (Rules), 1959 (“the Rules”) has been sent and that is the same address which reflected even in the cause title to which statutory notice was also sent. As on date, recent MCA website extract indicates the status of M Co as “Strike Off”.

 

The Court was approached to decide whether winding up proceedings can be initiated against a company which has been struck off the Register of Companies.

 

HELD

The High Court observed that in light of the facts it was possible to hold that the statutory notice was duly served as required under Rule 28 of the Rules.

 

The High Court after examining the provisions of section 248 of Companies Act, 2013 (“the Act”) observed that there was nothing in section 248 which shall affect the power of the Court to wind up a company the name of which has been struck off from the register of companies. The effect of company notified as dissolved was that the company shall on and from the date mentioned in the notice u/s. 248(5) of the Act cease to operate as a company and the Certificate of Incorporation issued to it shall be deemed to have been cancelled from such date except for the purpose of realising the amount due to the company and for the payment or discharge of the liabilities or obligations of the company.

 

The High Court held that just because the name of the company was struck off the register u/s. 248 of the Act, the same will not come in the way of the Court to pass an order of winding up of company.

 

It was further observed that M Co neither filed any affidavit opposing the petition nor did it reply to the statutory notice that was duly served. The High Court had the power to order winding up on the presumption of inability to pay the amounts claimed and not denied. The High Court held that where no response has been made to the statutory notice, the company runs a risk of winding up petition being allowed. By virtue of section 434 of the Companies Act, 1956 a presumption of the indebtedness could be legitimately drawn by the court where no reply to the statutory notice was forthcoming.

 

The High Court thus, ordered winding up of M Co and proceeded to appoint Official Liquidator who would take charge of the winding up proceedings to be carried out against M Co. _

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