Realiable Finance Corpn Pvt Ltd vs Nature India Communique Ltd

IA/5236/ND/2021 IN IB/2410/ND/2019 stands dismissed and liquidation is ordered. M/S NATURE INDIA COMMUNIQUE LIMITED.

PER: DR. BINOD KUMAR SINHA, MEMBER (TECHNICAL)

The present application has been filed under Section 30(6) read with Section 31 of the Insolvency & Bankruptcy Code, 2016, (‗Code‘) read with Regulation 39(4) of the Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 (‗Regulations‘) on behalf of Mr. Mohd. Nazim Khan, Resolution Professional of the Corporate Debtor (‗applicant‘), seeking approval of the Resolution Plan submitted by M/s. Lovely Securities Private Limited (‗Successful Resolution Applicant‘).

The facts as averred by the applicant in the application are stated in brief as follow:

The Applicant submitted that the Successful Resolution Applicant has submitted an undertaking under Regulation 39(1)(c) of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 (CIRP regulations) that every information and records provided in connection with or in the resolution plan is true and correct and discovery of false information and record at any time will render the applicant ineligible to continue in the corporate insolvency resolution process, forfeit any refundable deposit, and attract penal action under the Code.

We have heard the Applicant in person and perused the case records. The Applicant submitted that the proposed Resolution Plan submitted by the Successful Resolution Applicant is as per the provisions contained in the Code and so, the same may be approved.

The salient features of the proposed resolution plan as submitted by M/s. M/s. Lovely Securities Private Limited (‗Successful Resolution Applicant‘) and approved by the CoC in its 4^th CoC Meeting are as follows:-

The Corporate Debtor is a Public Company incorporated on 30.11.1981 and listed on Metropolitan Stock Exchange of India. The Corporate Debtor is engaged in the business to manufacture, produce, assemble, repair or otherwise deal in all sorts of items system, plants, machines, instruments, devices article or things of communication of different models, capacities.

LIMITED:-

Upon approval of the Resolution Plan by the NCLT, the Corporate Debtor will be merged with the Resolution Applicant i.e. Lovely Securities Pvt Ltd and then the status of Lovely Securities Pvt Ltd will be converted from the Private Limited to the Public Limited without any further act, deed or thing on the part of the Resolution Applicant to Lovely Securities Limited and immediately upon the said change in the name of the Company becoming complete and effective due to conversion and merger, the new name will be substituted for the existing name wherever it appears in the Memorandum and Articles of Association and in all other records/display of the Company and the Clause 1 of the Memorandum of Association and Articles of Association of the Resolution Applicant will be reworded as follows: ―M/S. LOVELY SECURITIES LIMITED‖

Upon approval of the plan by the NCLT, the listing status of the Corporate Debtor will be transferred to the Resolution Applicant without any further act, deed or thing on the part of the Resolution Applicant and the Resolution Applicant will become the active listed company on Metropolitan Stock Exchange of India after approval of Resolution Plan by the Adjudicating Authority.

Further, if the listing is suspended on Metropolitan Stock Exchange of India due to any reason whatsoever, the said suspension will be removed by the Metropolitan Stock Exchange of India immediately after approval of the Resolution Plan by the Adjudicating Authority.

The entire dues of Metropolitan Stock Exchange of India towards listing fee on account of listing of shares of the Resolution Applicant will be paid by the Resolution Applicant.

Effective Date shall mean such date on which the approval is granted by Hon'ble Adjudicating Authority and any other appropriate authority in order to implement the Resolution Plan and certified true copy of the order approving the Resolution Plan has been received by the Resolution Applicant.

A perusal of the Resolution Plan indicates that the Resolution Plan provides for a Scheme of Merger in which the Corporate Debtor (‗transferor company‘) shall be merged with the Successful Resolution Applicant (‗transferee company‘), subject to payment of the obligations of the SRA and such other terms and conditions of this Resolution Plan. It is, therefore, pertinent to refer to Section 5(26) of the Code, 2016 and Regulation 37 of IBBI (CIRP) Regulations, 2016 provisions of Section 5(26) of the Code, 2016 are as follows:-

Thus, the definition of ‗Resolution Plan‘ under Section 5(26) of the Code, 2016 includes restructuring by way of merger, amalgamation/demerger etc. In fact, in CIRP Regulation 37, clause (ba) was inserted vide Notification No. IBBI/2019-20/GN/REG052 dated 27.11.2019 w.e.f. 28.11.2019 to incorporate the said provision to clarify that a Resolution Plan submitted by the SRA may also provide for restructuring of the Corporate Debtor by way of merger, amalgamation and demerger. Therefore, the Resolution Plan approved by the CoC provides for merger of the Corporate Debtor into the SRA, subject to payment of the obligations by the SRA.

In view of Section 31 of the Code, the Adjudicating Authority, before approving the Resolution Plan, is required to examine that a Resolution Plan which is approved by the CoC under Section 30 (4) of the Code meets the requirements as referred under Section 30 (2) of the Code. Section 30 (2) is quoted below: -

From the averments made in the Application as well as in compliance of Regulation 39(4) of the CIRP Regulations, the applicant has filed compliance certificate in Form-H certifying that the Resolution Plan submitted by the successful resolution applicant meets the requirements as laid down in various clauses of Section 30 (2) of the Code. This Tribunal is duty bound to examine the Resolution Plan vis-à-vis the mandatory compliance under the Code and the compliance made under the subject Resolution Plan is captured hereunder.

In respect of compliance of Section 30(2)(a) of the Code, it is seen that there is a provision in the Resolution Plan in clause 6.2.1 (CIRP Costs) and 6.2.2 (Treatment) which provides that the CIRP cost, as approved by CoC shall be payable as INR 6 Lakh or actual amount, whichever is higher and in priority to the repayment of any other dues of the Corporate Debtor as per the provisions of the IBC.

As regards compliance of clause (b) of Section 30 (2) of the Code, it is seen that clause (b) of Section 30 (2) of the Code shall not be applicable as the corporate debtor has no outstanding debts owed to the operational creditor.

As regards compliance of clauses (c) and (d) of Section 30 (2) of the Code, it is seen that the manner of the management of the affairs and control of the business of the Corporate Debtor has been provided in Chapter –V, Clause 5.1 to 5.8 of the Resolution Plan. The Clause 5.7 of the plan provides for appointment of the monitoring agency for the implementation and supervision of the Resolution Plan. The Monitoring Agency shall comprise of Mr. Mohd Nazim Khan, Resolution Professional as the Chairman with two representatives of the Successful Resolution Applicant.

As regards compliance of clause (e) and clause (f) of Section 30 (2) of the Code, the successful resolution applicant has submitted declaration under Section 30(2)(e) and Section 30(2)(f) of the Code affirming that the Resolution Plan does not contravene any of the provisions of the law and conforms to such other requirements as may be specified by the Board.

On a perusal of Form-H, we observe that no application under Section 43, 45, 50 and 66 of the Code, 2016 is filed and pending before this Adjudicating Authority and also the liquidation value and fair value of the Company is Nil. This Adjudicating Authority in its order dated 17.07.2022 had raised the query regarding the valuation of the Corporate Debtor and directed the Applicant to furnish the Liquidation and Fair Market Value. The Applicant had submitted an affidavit dated 25.07.2022 in compliance of this Adjudicating Authority‘s order dated 17.07.2022 along with the minutes of the 2^nd CoC Meeting wherein the following submissions are made by the applicant:-

On perusal of the Application and the documents annexed therewith, this Adjudicating Authority observes that as per the Information Memorandum of the Corporate Debtor and Audited Balance Sheets of the Corporate Debtor, no assets except the Bank Balance exist in the name of the Corporate Debtor. Further, from the website of the Metropolitan Stock Exchange of India, we find that the securities of the Corporate Debtor i.e., M/s. Nature India Communique Limited having ISIN:INE639R01011 was temporary suspended by Metropolitan Stock Exchange of India from 12.02.2021 on account of Non-Compliance of SEBI (LODR) Regulations, 2016. Accordingly, this Adjudicating Authority is prima facie satisfied that the Valuation of the Assets and the Securities of the Corporate Debtor cannot be conducted.

This Adjudicating Authority vide order dated 27.09.2023 directed the Applicant to file clarification through an affidavit as to how the present Resolution Plan complied to Section 30(2)(e) of IBC 2016, in view of the clause related to ―Transfer Of Listing Status of the Corporate Debtor‖. The clause of ―Transfer of Listing Status of the Corporate Debtor‖ is reproduced herein for ready reference:-

The applicant in compliance of the order dated 27.09.2023 had submitted the affidavit dated 11.10.2023, wherein the following clarifications are submitted:-

We have heard the submissions made by the Applicant and perused the averments made in the affidavit. The question before this Adjudicating Authority is that,‖ whether pursuant to a merger under IBC, 2016 as a part of the Resolution Plan, the Listing Status of the Corporate Debtor (‗Transferor Company‘) can automatically be transferred to the Successful Resolution Applicant (‗transferee Company‘), specifically in view of restriction as provided under Section 232(3)(h)(A) of the Companies Act, 2013?‖

The relevant provision of Section 232 (3)(h)(A) of the Companies Act, 2013 is reproduced hereunder for ready reference:-

Thus a per the provisions of Section 232(3)(h) of the Companies Act, 2013, the transferee Company shall remain an unlisted Company until it becomes a listed company and the public shareholders shall have to be given an option to opt out of the Transferee Company and provisions are made for value of their shares in accordance with SEBI Regulations, It is pertinent to note that the Applicant himself has admitted that no valuation of shares of the Corporate Debtor is possible.

Further, is important to note here that as per the provisions of Section 21 of SCR Act, 1956, for listing the securities on any Stock Exchange, the Company needs to comply with the conditions of the Listing Agreement with that Stock Exchange and no Company can get its Securities automatically listed without compliance to these conditions.

The exemption as provided under Regulation 37 (7) of Listing Obligation and Disclosure Requirements, 2015 (LODR) as relied upon by the Applicant, only exempts the restructuring proposal approved under IBC, from the requirement of seeking the No-Objection Certificate from the Stock Exchange. Accordingly, the same is of no help to the Applicant in the present case as the issue in question is different and is not related to the Stock Exchange‘s prior approval with respect to the Scheme of merger as part of the Resolution Plan. Therefore, the clarification(a) provided by the Applicant vide affidavit dated 11.10.2023 cannot be accepted.

As regards the clarification (b) placed vide affidavit of the applicant dated 11.10.2023, this Adjudicating Authority is of the view that the construction of Section 30(2)(e) by no means be restricted to the Insolvency and Bankruptcy Code, 2016. Here, it is immediately discernible from the Explanation below Section 30(2)(f) which reads as under:-

The explanation clearly lays down that consent of shareholders of the Corporate Debtor shall be deemed to have been given under the provisions of the Companies Act, 2013 or any other law, if it is required for implementation of the Resolution Plan and it will not be a contravention of the Companies Act, 2013 or the relevant law. Therefore, the scope of Section 30(2)(e) of the Code, 2016 cannot be restricted to the provisions of the Code, 2016 and the Regulations and notifications, circulars etc. thereunder as contended by the Applicant.

Here, it is also relevant to refer the `General Circular No. IBC / 01 / 2017, Bearing No. 30 / 14 / 2017 – Insolvency, Government of India, Ministry of Corporate Affairs, New Delhi dated 25.10.2017‘, issued by the `Director‘ on the subject `Clarification regarding approval of Resolution Plans, under section 30 & 31 of Insolvency and Bankruptcy Code, 2016‘, wherein, at Paragraph 3, it is observed as under:

When we examine the submissions of the Applicant that for implementing the ‗Resolution Plan‘ under the ‗IBC‘, the compliance of Section 232(3) (h) (A) of the Companies Act, 2013, is not required, in the light of, the General Circular No. IBC / 01 / 2017 dated 25.10.2017, it is crystalline clear that any resolution plan(s) considered and approved by the Committee of Creditors and the Adjudicating Authority has to be mandatorily compliant with the provisions of the applicable laws, for the time being in force so as to become legally implementable. Therefore, by no means, it can be construed that the restriction under Section 232(3)(h)(A) of the Companies Act, 2013 can be by-passed by means of restructuring under IBC,2016. Accordingly, the submission of the Applicant that the scope of Section 30(2)(e) of the Code, 2016 is only limited to I & BCode, 2016 cannot be accepted.

No doubt, in terms of explanation to Section 30(2) of the Code, if any approval of shareholders is required under the Companies Act or any other law for the time being in force for the implementation of actions under the resolution plan, such approval shall be deemed to have been given and it shall not be a contravention of the Companies Act or the other law. In view of the deemed consent of shareholders and the resolution plan being binding upon the creditors, where the resolution plan contemplates restructuring of the corporate debtor by way of merger, amalgamation or demerger, the corporate debtor should not be required to comply with the merger framework separately under the provisions of the Companies Act, 2013.

However, in view of the above discussion, this Adjudicating Authority is of the considered view that neither the Listing Status of the Corporate Debtor (‗Transferor Company‘) can automatically be transferred to the Successful Resolution Applicant (‗Transferee Company‘) nor the suspension of Listing can be invoked by virtue of the merger/amalgamation of the Corporate Debtor into the Successful Resolution Applicant, as the same would be in violation of Section 232(3)(h)(A) of the Companies Act, 2013.Therefore, the Resolution Plan in its present form which is in contravention of Section 232(3)(h) of the Companies Act, 2013 and is not legally implementable and hence, the same is hereby rejected as being violative of Section 30(2)(e) of the Code, 2016.

Resultantly, in view of the aforesaid discussion and observation the proposed Resolution Plan stands rejected and I.A.5236/ND/2021 stands dismissed.

In view of the above rejection of the Resolution Plan and pursuant to Section 33(1)(b) of the Code, 2016, it is hereby ordered that liquidation of the corporate debtor, namely M/s. Nature India Communique Limited shall be commenced in the manner laid down in the Chapter III of Part II of the Insolvency and Bankruptcy Code, 2016 along with following directions:

a. Mr. Prabhat Jain, registered insolvency professional having registration number IBBI/IPA-001/IP-P-01980/2020-2021/13123 having e-mail id [email protected], is appointed as Liquidator in terms of Section 34(1) of the Code for corporate debtor from the Panel of Insolvency Professionals for the period July 1 – December 31, 2023 as forwarded by IBBI vide letter no. IP-12011/1/2020-IBBI dated 04.07.2023. The appointed Liquidatoris directed to submit his consent in Form-2, valid AFA and disclosure about non-initiation of any disciplinary proceedings against him, within three (3) days of pronouncement of this order.

b. Mr. Prabhat Jain, is directed to take over all the Asses, documents, information and record of CIRP proceedings from the Resolution Professional, who shall hand over the charge to the Liquidator within 7 days.

c. The Liquidator is directed to issue Public Announcement stating that the corporate debtor is in liquidation, in terms of Regulation 12 of the Insolvency and Bankruptcy Board of India (Liquidation Process) Regulations, 2016 (Regulations);

d. The Registry is directed to communicate this Order to the Registrar of Companies, NCT of Delhi & Haryana and to the Insolvency and Bankruptcy Board of India;

e. The Order of Moratorium passed under Section 14 of the Code shall cease to have its effect and that a fresh Moratorium under Section 33(5) of the Code shall commence;

f. The Liquidator is directed to proceed with the process of liquidation in the manner laid down in Chapter III of Part II of the Code and in accordance with the relevant regulations.

g. The liquidator shall follow up and investigate the financial affairs of the corporate debtor in accordance with provisions of Section 35 (l) of the Code.

h. The liquidator shall also follow pending application, if any, for its disposal during the process of liquidation including initiation of steps for recovery of dues of the Corporate Debtor as per law.

j. Copy of this order be sent to the financial creditors, corporate debtor and the Liquidator for taking necessary steps.