Case Note & Summary
The appeals arose from the liquidation of Kamachi Industries Limited (Corporate Debtor), which was admitted into Corporate Insolvency Resolution Process on 19 February 2020 on a Section 7 application by State Bank of India. After the Committee of Creditors rejected three resolution plans for being below liquidation value, the CoC voted for liquidation on 14 September 2021 and the NCLT, Chennai passed the liquidation order on 9 December 2022, appointing a Liquidator. The Liquidator formed the Stakeholders Consultation Committee, conducted fresh valuation and on 16 October 2023 issued a public announcement for sale of the Corporate Debtor as a going concern either under Regulation 32(e)/32A of the IBBI (Liquidation Process) Regulations, 2016 or through a Scheme of Arrangement/Compromise under Section 230 of the Companies Act, 2013. A minority shareholder (the appellant) submitted a Scheme of Arrangement on 18 October 2023. The Liquidator was subsequently changed at the instance of a Financial Creditor; the new Liquidator cancelled the e-auction notice and issued a fresh notice on 27 December 2023. The e-auction was held on 31 January 2024 and the highest bidder, a consortium of Virendra Jain and Ankit Jain, was issued a Letter of Intent. On the same day, the SCC rejected the appellant’s Scheme on grounds that the value offered was lower than liquidation value, there was no clarity on source of funds, and it did not want to derail the auction. The Liquidator filed IA/420/2024 seeking confirmation of the sale as a going concern, while the appellant filed IA/416/2024 seeking to set aside the e-auction and a direction to the Liquidator to consider his Scheme. The NCLT, by its common order dated 19 July 2024, dismissed the appellant’s application and allowed the Liquidator’s application, confirming the sale. The appellant preferred these appeals under Section 61(1) of the IBC. The appellant’s principal contentions were that his Scheme under Section 230 should have been considered first, that simultaneous processing of the Scheme and e-auction violated the Code, that the 90-day period under Regulation 2B is directory and could not be used to reject the Scheme, and that only a creditors’ meeting under Rule 3 of the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016 could approve or reject the Scheme, not the SCC. The Liquidator argued that sale as a going concern under Regulation 32 serves the same purpose as a Scheme and that once the auction had concluded, there was no necessity to consider the Scheme, and after the sale, no cause of action survived. The judgment text available is incomplete; it ends abruptly during the summary of the appellant’s case without recording the Tribunal’s analysis, findings or operative directions. Consequently, the decision, ratio decidendi and final outcome cannot be determined from the provided material.
Headnote
A) Insolvency and Bankruptcy - Liquidation Process - Scheme of Arrangement vis-à-vis Sale as Going Concern - Sections 230, Companies Act, 2013 and Regulations 32(e), 32A, IBBI (Liquidation Process) Regulations, 2016 - The appellant, a minority shareholder, argued that his Scheme under Section 230 should be given precedence over the sale process under Regulation 32, as the Liquidator proceeded with both simultaneously, which is contrary to the Code - The Liquidator contended that sale as going concern serves the same objective and, once the auction was concluded on 31.01.2024, no necessity to consider the Scheme - The Tribunal's decision on this point is not available in the provided text (Paras 7-8, 11-12). B) Insolvency and Bankruptcy - Liquidation Process - Simultaneous Consideration of Scheme and Sale - Section 230(1), Companies Act, 2013 - The appellant submitted that the Liquidator's simultaneous processing of the Scheme and e-auction is against the provisions of the Code, particularly Section 230(1) - The Respondent argued that no bar exists and that the concluded sale takes priority - The Tribunal's view is not mentioned (Paras 8, 11). C) Insolvency and Bankruptcy - Liquidation Process - Time Period for Scheme under Regulation 2B - Regulation 2B, IBBI (Liquidation Process) Regulations, 2016 - The appellant contended that the 90-day period prescribed under Regulation 2B to complete the compromise/arrangement process is directory, not mandatory, relying on Supreme Court and Principal Bench precedents, and the rejection of his Scheme on the ground of delay was not valid - The Liquidator did not directly address this argument in the excerpt - The Tribunal's ruling is not provided (Paras 9). D) Company Law - Compromises, Arrangements and Amalgamations - Procedure for Approval of Scheme - Section 230, Companies Act, 2013, Rule 3, Companies (Compromises, Arrangements and Amalgamations) Rules, 2016 - The appellant argued that acceptance or rejection of a Scheme of Arrangement can only be done by a meeting of creditors under Rule 3, and not by the Stakeholders Consultation Committee, and thus the SCC's rejection was flawed - The Respondent did not specifically counter this submission in the available text - The Tribunal's determination is not mentioned (Para 10).
Issue of Consideration
Whether the Liquidator was bound to consider the Scheme of Arrangement under Section 230 of the Companies Act, 2013 before proceeding with sale as going concern under Regulation 32 of IBBI (Liquidation Process) Regulations, 2016; Whether the rejection of the Scheme by the Stakeholders Consultation Committee without a creditors' meeting under Rule 3 was valid; Whether the confirmation of sale was proper despite alleged procedural deficiencies
Final Decision
Decision not clearly stated
Law Points
- Legal points not extracted
- Precedence of Scheme under Section 230 Companies Act over sale under Regulation 32 of IBBI Regulations
- directory nature of 90-day period under Regulation 2B
- approval procedure for Scheme under Rule 3 of Companies (Compromises
- Arrangements and Amalgamations) Rules
- 2016
- simultaneous consideration of Scheme and sale contrary to Code
- sale as going concern meets legislative intent
