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The present Petition was transferred to this Bench on 7.1.20t7 and was initially lodged on 18.11.2011 before the Hon’ble High Court of Bombay (hereinafter referred to as “Court”).
The Petitioner, an ex-chairman and shareholder of Amar Dye Chem Limited (in Liquidation) (hereinafter referred to as “Business”), has proposed a Scheme of Compromise and/or Arrangements between the Company and its creditors and members, as well as capital restoration, in accordance with Sections 3911394 read with Sections 80, 81, and 100 to 103 of the Companies Act, 1956. NlUM BAI BENCH rcg 1/391-394/2017 IN THE NATIONAL COMPANY LAW TRIBUNAL
Since the corporation was declared sick and the recovery schemes failed, Company Petition No. B95 of 1998 was filed before the Hon’ble High Court on the advice of the Board for Industrial and Financial Reconstruction. The Company was wound up by the Court on December 9, 1998, and the Official Liquidator of the Bombay High Court was named as the Liquidator of the Company. Following that, the plaintiff has lodged a motion for the Company’s resurrection in liquidation.
According to the Official Liquidator’s report filed with the Bombay High Court on September 6, 2013, the following objections were raised:
a) that the Company Scheme Petition was filed solely to delay the liquidation and winding up of the Company.
b) the petition fails to meet the requirements of sections 391–394 of the Companies Act 1956.
c) The petitioner has not revealed all relevant information pertaining to the Company, such as the most recent financial situation, the most recent accounting report on the Company’s finances, and the status of investigative proceedings under sections 235 to 252 of the 1956 Act.
d) After the Company’s liquidation, the Petitioner refused to file a Company Scheme Petition for restoration of the Company for more than 12 years, causing more delays in approaching the Court.
e) The Scheme withholds the following information:
- descriptions of the Company’s revival.
- Whether or not the promoters would resume the operation that was started prior to the winding up.
- The factory’s business, including finances, will be reorganized.
f) By injecting Rs13.38 crores of equity funds, the Sponsor will own more than 75 percent of the Company in liquidation, and the revival is not a genuine proposal to resume production operations, but rather to financially leverage the Company’s immovable properties.
g) According to the chairman’s report dated September 30, 2011, members and shareholders were told that the Scheme’s sponsor is Mr. Rasiklal Mardia, which contradicts the Scheme, which lists M/s Panole Intermediate Pvt. Ltd. as the Scheme’s sponsor.
h) Payment to formal creditors is also a work in progress, and would necessitate deliberations and discussions.
I The scheme does not provide for the need to raise funds over a long period of time.
j) The Company has ample funds to cover its liabilities; however, ex-directors and individuals with several vested interests are preventing the selling of assets.
k) The Official Liquidator claims to be unaware of Shri Rakesh Mardia’s relations with the Company’s secured creditors. Furthermore, the secured creditors are opposed to the plan.
The following is taken from the Regional Director’s affidavit dated 5.12.2013, inter alia:
a) The Scheme cannot be considered without impleading the sponsor, “Panoli Intermediates Pvt. Ltd.”, who is included in the Scheme. The Scheme is flawed because it lacks the requisite party. The Hon’ble Court may be hesitant to force an individual who is not a party to the scheme to contribute money in the form of share capital and premium as required by clause 7(II) of the scheme.
b) Since the proposed sponsor, “Panoli Intermediates Pvt. Ltd.,” is neither a creditor nor a director of the Company, the proposed agreement would not come within the provisions of Section 391(1) of the Companies Act.
c) It’s worth noting that, despite the fact that the Scheme’s Clause 4.3 proposes a solution for statutory creditors, no meeting of that class of creditors has been called.
d) The meeting exception for preference owners was secured by the suppression of facts and deception of the Court. Furthermore, even though there is no agreement with the preference shareholders, the preference shareholders have a statutory right to attend the company’s meeting in the event that the Company has failed to pay the dividend amount due and payable to them for more than two years, in accordance with the Company’s Articles of Association as well as Section 87(a) of the Companies Act. I’1U M BAI BEN CH TCSP 1/391-394/2017 IN THE NATIONAL CO14PANY LAW TRIBUNAL
e) The debenture holders’ meeting should have been held because they are a different class of creditors, as required by section 391(2) of the 1956 Act.
f) The arrangement could be rejected by the Hon’ble Court due to a lack of complete information about the creditors due.
g) According to the minutes of the stock shareholders meeting held on September 9, 2011, the resolution passed regarding share capital reduction is against public policy and violates various provisions of the Companies Act. The reduction of equity capital will decrease the contribution of a shareholder, namely M/s Mardia Chemicals Ltd. (in Liquidation), in the Company from Rs. 5,37,50,000/- to Rs. t0,75,000/-, which will represent on the wealth side of the shareholder and is not in the best interests of M/s Mardia Chemicals Ltd. shareholders.
h) The chairman/scrutinizer refused to take into account the votes of shareholders as reported in the Company’s Register of Members.
Seven workers lodged a petition opposing the plan, including, among other things, the following concerns in the Company Scheme Petition:
a) The petition does not have the workforce as a signatory.
b) The Company’s object clause in its Memorandum of Association already lacks a clause allowing it to engage in real estate activity. On the basis of their B0o/o shareholding, the Promoters can exploit the object clause in the Memorandum of Association to include the real estate industry and make big profits after purchasing the Company at a low rate.
c) Under Section 529 of the 1956 Act, the workmen became priority creditors after the winding up order.
d) The workers have not been paying since June 1997 and are entitled to pay from June 1997 to December 9, 1998, as well as salaries in practical terms.
e) That in the event of a recall of the winding up order, the workmen’s operation will be considered reinstated/continued in service after December 9, 1998, entitling them to privileges of continuous service, including pay, until their services are legally terminated afterward.
M/s Sunstar Estate Developers Private Limited, a covered debenture operator, also filed objections on 1.4.2013: BENCH TCSP 1/391 394/2017 IN THE NATIONAL COMPANY LAW TRIBUNAL, MUMBAI
a) That the scheme seems to be unlawful on the surface, without utter bonafide, and that it was filed for the oblique reason of seizing properties from a company in liquidation.
b) Delay in filing a motion in court to seek orders for publishing the notice and setting the hearing date.
c) The hearings are tainted by the illegality committed in organising and holding the assembly.
d) Capital reduction is counterproductive to the interests of owners and creditors. The real value of the company’s properties exceeds its gross debt, implying a good argument for capital return to the contributors.
e) The proposed arrangement is illegal because it contemplates a transition in the financial structure of the corporation when it is in liquidation, much to the detriment of the shareholders/contributors, and without the permission of the winding up court. The provisions of Section 536 of the Companies Act, 1956, have the same effect. The B. Mazdoor Congress Union objected to the scheme, stating, among other things, that:
- Due to widespread bogus voting in the names of unsecured creditors and owners, the scrutinisers’ report, ballot papers, and attendance register were not presented with the Chairman’s report.
- That the proposer’s staff, colleagues, and family were carried in vast numbers for sham elections.
- Many unsecured creditors, preferred creditors, and others were denied access to the conference and were unable to vote.
Amritlal Chemaux Private Limited, the Company’s shareholder and promoter, filed an affidavit objecting to the schemes on the same grounds as previously stated.
Now the question is whether the promoter directors or any of the owners of a company in liquidation can file an application under Section 39f (1) of the Companies Act, 1956/Section 23O (1) of the Companies Act, 2Ol3 requesting the agreement sought in this application under Section 39f (1) of the Companies Act, 2Ol3.
In this case, the Petitioner is a promoter director/shareholder of Respondent No.1 corporation, which received a winding up order from the National Company Law Tribunal, and an Official Liquidator was named to deal with the company’s winding up in accordance with the Companies Act, 1956. After the Government of India released a circular for the transfer of Scheme matters from High Courts to NCLT, this matter has also been moved from Hon’ble High Court of Bombay to NCLT, Mumbai to proceed with the matters transferred from High Courts to NCLT.
After this Petitioner/shareholder of this company in liquidation filed this Company petition under Section 391(1) of the Companies Act, 1956, seeking the revival of the company in liquidation by a compromise with the company’s creditors, a legal conundrum has arisen as to whether the petition filed by the promoter director who has a shareholding in the company on hiatus is valid. To determine this, we must return to the relevant section of law to determine if the shareholder or promoter director has standing to file such a motion before this Court, for which we reproduce the relevant section of law as follows: Companies Act, 1956, Section 391(1). Power to reach out to creditors and members in order to reach a compromise or make arrangements. “(1)Where a compromise or arrangement is proposed- (a) between a company and its creditors or any class of creditors; or (b) between a company and its members or any class of members; The [Tribunal] may, on the application of the company or any creditor or member of the company, or, in the case of a company being wound up, on the application of the liquidator, order a meeting of the creditors or any class of creditors;
We have not gone through if Section 391 of the Companies Act, 1956 or Section 230 of the Companies Act, 2013 is valid since this clause of the repealed enactment is para materia with the current provision of Section 230(1) of the Companies Act, 2013. 11U M BAI BENCH rcsP 1/39r-394/2017 IN THE NATIONAL COMPANY LAW TRIBUNAL.
When reading this provision, it becomes clear that, in the case of companies that are not in liquidation, an application for compromise or arrangement can be filed by the company, any creditor, or any member of such a company, but that, in the case of a company in liquidation, the liquidator alone is authorised to file a petition.
In the present case, it is true that the petition is for the revival of the company in liquidation by way of compromise with the creditors; as such, the petition should have been filed by the Liquidator; nevertheless, this petition is filed by the former promoter director on the grounds that they have shareholding in the company, which is not permitted under Section 391(1) of the CPA. When filing an application under section 391 of the Act, a distinction has been made between companies that are not in liquidation and companies that are in liquidation. When the legislation specifies who is qualified to file a business petition for revival under Section 391(1), this Court cannot deviate from the statute’s directive.
While it is not necessary to go through the reasons for such designation, it is important to remember that if an official liquidator has been named in a winding up order, no one other than the Liquidator appointed in that company can have locus to serve the company because the law has granted a mandate as soon as the winding up order has been passed. Since the official liquidator is the company’s ultimate authority and custodian, neither the owners nor the promoter director will be able to deal with the company’s affairs, especially when the company is restructured under a Scheme envisaged under Section 391(1) of the Companies Act, 1956/230(1) of the Companies Act, 2013. This Bench would not have authority to hear a company petition filed under Section 391(1) for the revival of a company in liquidation if the mandate is clear and the reason for it is also plain that the Liquidator alone is a competent individual for the revival of the company through a scheme.
To get around the rule, the Petitioner’s counsel cited Sunl Gandhi and Ors. vs. A. N. Buildwell Private Limited and Ors. (2017) 203 Comp Cas 330 to argue that shareholders should still file a Scheme Petition for the resurrection of a corporation in liquidation.
Following a review of the proceedings, the question raised is whether the company court has exclusive authority to hear applications brought under Section 397 of the Companies Act 7956 in relation to the revival of a Respondent company in provisional liquidation, following the effective date of the subject notice, 75.72.2076.
The details of this case are that a temporary liquidator was named in a winding up petition, and then the ex-management of the sold company lodged a company petition under Section 391 for the company’s recovery by way of agreement with its creditors. In light of the Ministry of Corporate Affairs notification in respect of the transfer of pending proceedings from High Courts to NCLT in respect of Scheme matters and winding up petitions which were pending with High Courts where notice was not provided, a question arose before this Bench as to whether this subsequent petition for revival under Section 391 could be filed before High Court or not.
The limited question resolved in the case above is whether the High Court has jurisdiction over Scheme issues that have already been moved to the NCLT. There, it is explicitly mentioned that High Courts would have authority to deal with Scheme Petition for Business Revival since the resulting scheme petition for revival should not be considered as a separate action from the winding up proceeding already pending with the respective High Court.
However, since it was not agreed somewhere in the case above that the promoters would have locus to file a company petition under Section 391 for the resurrection of a company in liquidation, the claim that was not decided by the Hon’ble High Court cannot become a ratio binding upon this Bench simply because the Ex-management filed the company petition.
It is self-evident that the Liquidator alone, IN THE NATIONAL COMPANY LAW TRIBUNAL, is qualified to file a petition for the recovery of a company in liquidation, especially where a winding-up order has been issued; the Liquidator’s powers will differ from those of the temporary liquidator named at the time of entry. In the case at hand, a scheme petition for the revival of the company was lodged, and a temporary liquidator was chosen. The ratio agreed as to whether NCLT will have authority or the Hon’ble High Court will have no bearing on this point that has come before this Bench because it was not decided by the Hon’ble High Court.
“The scheme of the Companies Act, 1956 empowers the Company Court to consider and approve a scheme of compromise and/or arrangement proposed by way of an application moved by the liquidator under the provisions of Section 391 of the Act, in the case of a company which is being wound up,” the Counsel appearing on behalf of the Petitioner said in the case above. This clearly suggests that a Scheme suggested for the revival of a business that has been forced to be wound up by the Company Court would be dealt with solely by the Company Court.”
By reading the above paragraph, it seems that it is only determined that the condition that has arisen in the case supra should be dealt with solely by the Company Court, i.e. the Hon’ble High Court, but nothing has been said on whether the Petition submitted by Ex-management is maintainable or not under Section 391(1) of the Companies Act, 1956. Furthermore, the question was not addressed by anybody in the preceding case; as a result, the ratio determined in the preceding case is not applicable to the present case.