National Company Law Appellate Tribunal
Uco Bank vs Srei Equipment Finance Limited And Anr on 7 September, 2021
NATIONAL COMPANY LAW APPELLATE TRIBUNAL,
PRINCIPAL BENCH, NEW DELHI
Company Appeal(AT) No. 232 of 2020
IN THE MATTER OF:
UCO Bank
Flagship Corporate Centre Branch
2 India Exchange Plance
Kolkata - 700 001 West Bengal ...Appellant
Versus
1.SREI Equipment Finance Ltd.
Vishwakarma, 86C, Topsia Road,
Kolkata - 700 046 ...Respondent No.1
2.SREI Infrastructure Finance Ltd.
Vishwakarma, 86C, Topsia Road,
Kolkata - 700 046 ...Respondent No.2
Present:
For Appellant : Mr. C.A. Sundaram, Sr. Advocate with Mr. P.C. Ghosh,
Mr. Partha Sil and Mr. Tavish Bhushan Prasad Advocates.
For Respondents : Mr. Joy Saha, Sr. Advocate with Mr. Abhijeet Sinha,
Mr. Dipen Chatterjee, Ms. Rusha Mitra, Mr. Saptrshi Mandal, Ms. Shreyas
Edupuganti, Advocates for Respondent No. 1.
Mr. Kumar Anurag Singh, Mr. Zain A. Khan and Mr. Saikat Sarkar,
Advocates for Respondent No. 2.
With
Company Appeal(AT) No. 43 of 2021
&
I.A. No. 641 of 2021
IN THE MATTER OF:
Reserve Bank of India
Regional Office at 15, N.S.Road
Kolkata - 700 001 ...Appellant
Versus
Company Appeal (AT) No. 232 of 2020 & 43 of 2021
1
SREI Equipment Finance Ltd.
Vishwakarma, 86C, Topsia Road,
Kolkata - 700 046 ...Respondent
Present:
For Appellant : Mr. Arun Kathpalia, Sr. Advocates with Mr. V.P. Singh,
Ms. Vatsala Rai, Ms. Sayobani Basu and Ms. Vanya Chhabra, Advocates.
For Respondent : Mr. Joy Saha, Sr. Advocate with Mr. Abhijeet Sinha,
Mr. Dipen Chatterjee, Ms. Rusha Mitra, Mr. Saptrshi Mandal, Ms. Shreyas
Edupuganti, Advocates for Respondent.
JUDGMENT
DR. ASHOK KUMAR MISHRA, TECHNICAL MEMBER
1. These two appeals have been filed by the Appellants under Section 421 of the Companies Act, 2013 (for short 'Act') against the impugned order dated 21.10.2020 passed by the National Company Law Tribunal, Kolkata Bench ('Tribunal') in CP(CAA) No. 1106/KB/2020. Both the appeals seek primarily the relief to set aside the order dated 21.10.2020 as stated above. Both the appeals arising out of the same impugned order were clubbed and heard together for disposal of the case.
2. This is a case of amalgamation of 'SREI Infrastructure Finance Limited' the "Transferor Company" being a holding company with 'SREI Equipment Finance Limited' being the "Transferee Company" which is 100% subsidiary of the holding company in terms of business transfer agreement dated 16.08.2019 by way of 'Slump Exchange' the definition of which is given hereunder:
"Slump Exchange" shall means transfer of undertaking to the Transferee, on a going concern basis, without values being without Company Appeal (AT) No. 232 of 2020 & 43 of 2021 2 values being assigned to the individual assets and liabilities in exchange of issuance and allotment of Shares by the Transferee to the Transferor."
3. The Tribunal has passed the order for convening meeting of 'Creditors' as defined in Part-III of the Scheme (Part-III Creditor) and also meeting of Creditors as defined in Part-IV of the Scheme (Part -IV Creditor) on 16.12.2020 and 23.12.2020 for the purpose of their considering and if fond fit approving with or without modification the scheme of arrangement as submitted to the Tribunal and has also given necessary directions for publication in the newspapers, giving notice, appointing 'Chairperson', 'Scrutiniser' and fixing quorum for the meetings etc., as happens formally at the initial stage to comply with the provisions of the Section 230 of the Act and the 'Companies (Compromises Arrangement and Amalgamations) Rules 2016'. The Appellant, in general, in Company Appeal (AT) No. 232 of 2020 and in specific Company Appeal (AT) No. 43 of 2021 is critical of the direction given in para 23 (xviii) of the impugned order , the same is reproduced below for ease of convenience:
Section 23(xviii) - In exercise of powers conferred under section 230 of the Companies Act, 2013 R/w Rule 11 of the National Company Law Tribunal Rules, 2016 and until the Scheme is considered by the said part III and Part IV Creditors and this Tribunal and to protect the interest of stakeholders, we direct that in the meantime, the part III and Part IV Creditors of the Applicant Company shall maintain status quo till further orders with respect to their respective contractual terms dues claims and rights and are estopped from taking any coercive steps including reporting in any form and /or changing the account status of the Applicant Company and its holding Company (SREI Company Appeal (AT) No. 232 of 2020 & 43 of 2021 3 Infrastructure Finance Limited) from being a standard asset, which will prejudicially affect the implementation of the Scheme and render the said Scheme ineffective."
4. The Appellant in CA (AT) No. 232 of 2020 has raised the issue of jurisdictional error or material irregularity in exercising the jurisdiction by the Tribunal under Section 230 of the Act. Axis Bank letter dated 07.11.2019 page 59 volume -I of the Appeal paper book and letter dated 04.04.2020 of the Appellant- UCO Bank available at page 60 of the Volume
-I of the Appeal paper book, which were in their individual capacity has been misconstrued as prior consent of 75% approval of the Secured Creditors. The Appellant has also submitted that the UCO Bank, representing the consortium of Bankers has filed this appeal against the impugned order after their internal concurrence and approval. It was also submitted by the Appellant that the meeting of Part-III Creditors were held on 16.12.2020 and the proposed scheme has been rejected by the majority of the Secured Creditors, therefore, the proposed scheme has become infructuous as scheme now cannot be legally approved as per the provisions of the Act and related Regulations and subsequent events being cognizable, the Appellate Tribunal was requested to bring the proceedings to its logical conclusion. It was also submitted by the Appellant on a comparative analysis of Section 391 of the Companies Act, 1956 and Section 230 of the Act, there is no power to grant any stay of proceedings under the Act as was available under Section 391(6) of the Companies Act, 1956. Any order restraining statutory authority for performing their duties as provided under the specific statute cannot be granted while considering an application for approval of the Scheme. It is Company Appeal (AT) No. 232 of 2020 & 43 of 2021 4 not in dispute that if final relief cannot be granted, no interim relief can be granted. There is an overriding effect of the 'Recovery of Debts and Bankruptcy Act, 1993', the 'Securitization and Reconstruction of Financial Assets and Enforcement of Securities Interest Act, 2002' and 'the Insolvency and Bankruptcy Code, 2016'. There are no provisions under the Tribunal Rules, 2016 for review. The only power exists for correction and rectification of order under Rule 148 and 154 of the Tribunal Rules, 2016.
It was also stated that interim order of injunction is in violation of Section 41 of the 'Specific Relief Act, 1963'.
5. The Appellant in Company Appeal (AT) No. 43 of 2021 being 'Reserve Bank of India' (RBI) is statutorily responsible to regulate the banking sector etc. while the Respondent - SREI Equipment Finance Limited, is a non- banking financing company and is registered& licenced by the RBI. The present scheme of arrangement involves the consent of the creditors comprising the banks and financial institutions and the Tribunal has passed the order for holding the meeting of creditors for consenting /concurring the scheme. The consent is required by the majority of creditors representing 3/4th (i.e. 75%) in value of the creditors or class of creditors. The Appellant is critical for the direction of the Tribunal to maintain a status quo so far as the Respondents debts are concerned, not to classify the Respondents debts as 'NPA' and not taking any coercive steps against the Respondents including reporting in any form or changing the account status pending the consideration of the scheme by the creditors. They have observed and stated that the Tribunal is in the teeth of statutory scheme under the RBI Act and its related circulars including Company Appeal (AT) No. 232 of 2020 & 43 of 2021 5 the master circular on prudential norms which has statutory force clearly set outs the parameters for classifications of the loan amount as NPA. This is the issue of grave importance and have significant public interest and hence the Appellant, RBI is critical of this. They have also stated that they were not party to the hearing and accordingly they could not present their submissions. However, they have filed an intervention application before the Tribunal. They have also stated that Section 230 of the Act, cannot be extended to Bank and financial institution which are discharging public functions by the impugned directions. The Appellants role as the prime regulator vested with wide powers under the BR Act and RBI Act to supervise, govern and regulate the Non-Banking Finance Company (NBFC). The Tribunal has failed to consider Chapter III-B of the RBI Act. The Tribunal has failed to appreciate as various courts have held in a catena of judgments that the Appellant has been vested with broad powers and directions as are available to it under the RBI Act and BR Act and have statutory force Banks and financial institutions are bound to follow and are not amenable to judicial review. It is also not in dispute that RBI Act is a 'Self-contained Code'. The Appellant under Section 35A of the RBI Act has to pass direction to the Respondent being NBFC and take action in the interest of depositors and the Banking Company. The Tribunal is a creature of the Act and has to be within the four walls of the Act and related Regulations. Section 230- 232 of the Act cast a limited obligation on the Tribunal to satisfy the scheme is not contrary to public policy and is not prejudicial to the creditors and members of the company. Company Appeal (AT) No. 232 of 2020 & 43 of 2021 6
6. While the Respondent No.1 - SREI Equipment Finance Limited has submitted that the Tribunal has passed the order for holding of meeting of creditors under the scheme and has only given the directions to the said creditors to maintain a status quo with respect to a respective contractual terms, claims and rights and estopped them from taking any coercive steps including reporting in any form. The Respondents have also alleged that the Appeal has been filed without appropriate authority. They have also raised that such objections can be made in meeting or in Tribunal and has no need to approach Appellate Tribunal. They have also stated that the scheme can be considered in the second stage of the motion only on the approval by the creditors covered under the scheme. They have also stated that the Appellate Authority may not interfere with the convening of meeting or any related actions. The conduct of the Appellants by imposing a debit freeze on the accounts of the Respondent No.1 has hindered them even to pay salaries to its employees or its other statutory obligations, all this conduct disentitles them to any relief. Rule 5 of the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016 deals with the procedure and the same has been followed by the Tribunal. Simply Section 230 of the Act is silent on the provisions, which was earlier available on Section 391(6) of the erstwhile Companies Act, 1956, it has not wiped-out power of the Tribunal under Section 230 of the Act. They have also stated that the very essence of the scheme under Section 230 is to provide the creditors/stakeholders themselves to decide the scheme of arrangement and such circumstances status quo is not against the law laid down. In the first stage motion under section 230 of the Act basically Company Appeal (AT) No. 232 of 2020 & 43 of 2021 7 only the Appellant Company appears and present their scheme for convening the meeting of members or creditor and is not required to give notice thereof to creditors. Creditors as well as Regulators come at a later stage. They have even stated that Section 41 of the Specific Relief Act is not applicable to the order as it is not a permanent injunction. They have also raised that the Appeal is barred by Limitation and the same was disposed of on 25.08.2021 after hearing the concerned parties that the appeal is within limitation as per the order of the Hon'ble Supreme Court in the case of Suo Motu Writ Petition (Civil) No. 03 of 2020 and the concerned I.A No. 642 of 2021 for condonation of delay was allowed.
7. We have gone through the submissions made by the parties and has carefully considered the pleadings and related regulations and are observing as follows:
a. Chapter XV of the Act - Compromises, Arrangements and Amalgamations are covered by Section 230 -240 of the Act. b. The related regulation is the Companies (Compromises, Arrangements and Amalgamations) Rules 2016 as amended from time to time.
c. Generally, there are two motions. In the first motion in accordance with Section 230 of the Act, Meetings are called for all the creditors or class of creditors and to all the members or class of members and the debentures holders of the Company. The Creditors or class of creditors, or members, or class of members as the case may be, have to approve by a majority of persons representing three-fourth in value of creditors or class of creditors or members or class of Company Appeal (AT) No. 232 of 2020 & 43 of 2021 8 members or in a case of a company being wound up then the Liquidator /Insolvency Professional and the contributories of the Company.
d. The Tribunal is to issue notice under Section 230(5) of the Act to the Central Government, the Income Tax Authorities, the RBI, the Security and Exchange Board, the Registrar, the Stock exchanges, Official Liquidator, Competition Commission of India as applicable and such other regulator or authority which are likely to be affected by the Compromises or Arrangements and shall require their representation to be made.
e. The Tribunal may dispense with calling of meeting of creditors or class of creditors where such creditors or class of creditors having at least 90% value agreed and confirmed by way of affidavit to the scheme of Compromises or Arrangements.
f. The Tribunal is right in calling the meeting of creditors and appointing 'Chairperson' and 'Scrutinizer' etc. g. The direction that the part -III & IV of the creditors of the Company shall maintain status quo about their debt, not to classify loan amount as NPA, till further orders with respect to their contractual terms, dues, claims and rights and stopping from taking coercive steps including reporting in any form under Section 230 of the Act R/w 11 of the NCLT Rules, 2016 is not in order. It is because the creditors themselves have to get it approved from 75% of the value of creditors and naturally, if they are not in favour of the scheme of arrangement, it will be disapproved. If they are interested in the Company Appeal (AT) No. 232 of 2020 & 43 of 2021 9 scheme, they will never invoke any coercive steps or other actions. NPA is determined as per the RBI Master Circular and the Financial institutions are to follow them. Even if the Company debt is under NPA and even if the Company is under Liquidation, it can always invoke Chapter-XV of the Act through Scheme of Arrangement to come out of the situation. There is no bar in merging unhealthy company with healthy company to come over the crisis. There was no need perhaps to pass this specific directions. h. Accordingly, we set aside the direction in para 23-xviii of the impugned order dated 21.10.2020 & para 3 of daily order sheet dated 21.10.2020 in CA(CAA) No. 1106/KB/2020 passed by the Tribunal. We are not touching other aspects of impugned order. We dispose of both the appeals with the above observations & directions.
Pending IAs, if any stands disposed of. Interim Orders, other than stated above, if any, passed by this Appellate Tribunal stands vacated. No orders as to costs.
[Justice Jarat Kumar Jain] Member (Judicial) (Dr. Ashok Kumar Mishra) Member(Technical) 7th September, 2021 New Delhi Raushan.k Company Appeal (AT) No. 232 of 2020 & 43 of 2021 10